Eu crisis presentation - final version

Financial Crisis and the European Union

MScFI – 2011/2012PP Finance

November, 2011

• Adam Balogh• Guillermo Palacios• Lucas Pederzini• Peter Bali

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Agenda


Main Financial Indexes

How the Crisis Started

Main Impacts in European Union

European Union Overview

Recovery Plan

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Capital Mobility


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Capital Mobility


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Unemployment


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Youth Unemployment


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Unemployment in the Great Depression


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How the crisis started

Uncertainty among banks;

Policy makers still described the crisis primarily as a liquidity problem;

European economy immune to the financial turbulence.

This sentiment dramatically changed in September 2008


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Result

Panic in stock markets and the trade credit became scare:

0 1 2 3 4 5 6 7 8 90

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Bank lending to private economy in the euro area 2000-09


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Negative growth:

Growth in % 2008 2009 2010

GDP 0,9 - 4,0 - 0,1

Private C 0,9 - 1,5 - 0,4

Public C 0,9 - 1,5 - 0,4

Total investments 0,1 - 10,5 - 2,9

Unemployment 7,0 9,4 10,9


Result

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Impact on Budgetary Positions

Rapid growth of fiscal costs:

• Fiscal Deficit;• Public Finances;• Sovereign Risk Spreads.


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Fiscal Deficit

Housing Boom; European Commission analysis:• Direct Channels;• Indirect Channels.


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Public Debt

Debt financed fiscal deficits;

Capital injections in distressed banks.


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Fiscal Stress and Sovereign Risk Spreads

Widening sovereign risk spreads;

Downgrading in credit rating;

Fiscal Space - risk re-pricing.


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Recovery Plan

Short Term Actions:

• European Financial Stability Facility (EFSF);• Special Purpose Vehicle (SPV) created in order to sell bonds to raise

money for granting loans to the euro zone nations in need.

• European Financial Stabilization Mechanism (EFSM);• Emergency funding program created in order to raise founds on the financial

markets, guaranteed by the European Commission, using the budget of the European Union as collateral.

• ECB interventions.• Open market operations buying Government's and private debts;• Two 3-month and one 6-month full allotment of Long Term Refinancing

Operations;• Reactivation of the dollar swap lines with Federal Reserve support.


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Recovery Plan


On-going Happenings:

Political changes:

• Greece and Italy - beginning of a new Management era.

• Results are expected before December/2012.

Kick-out poor and negligent Countries:

• Impacts on Political issues and diplomacy.

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Recovery Plan

Proposed long-term solutions:

• Common fiscal policy (European Treasury);

• European Stability Mechanism;

• European Monetary Fund (instead of EFSF);

• Address slow economic growth;

• Euro breakup – two currencies speculation.


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Future


?What’s the future of European Union?

Eu crisis presentation - final version

Economy & Finance

Transcript of Eu crisis presentation - final version