[wild wild west] Unraveling the euro and USA Crises
Go, magat, Miraflor, miranda, Muangsombut, navarro, punongbayan, sunglao, Timbang, tolentino
REPORT
OUTLINE
[overview of the crisis]
[Synthesis]
[Country Reports]
• USA
• PIIGS
• Germany &
France
• UK & Denmark
• Smaller
Economies
• Out of Zone
• 3a Euro STates
ov e rv i e w
Of the crisis
Overview
of the crisis
Overview
of the crisis
Size according to size of total government spending
as a % of GDP.
co u n t ry
r e p o r t s
Country Report : USA
Country Report : USA
Indicators - GDP
• 2011: 1.7% o Q3: 1.8% o Q4: 2.8%
• December 2011: 8.5%
Country Report : USA
Indicators - Unemp Rate
• Annual inflation rate (2011): 3%
Country Report : USA
Indicators - Inflation
• September 2011: Operation Twist o US Federal Reserve is trading some of its
shorter-term bonds in exchange for longer-term bonds (10-year bonds).
o Aims to increase demand for long-term bonds, drive prices up, therefore, driving down long-term interest rates to encourage borrowing.
Country Report : USA
Financial Crisis Update
Debt levels remain high…
Country Report : USA
Narrowing debt, gdp
Country Report : USA
Economic Growth
Country Report : USA
Consumption/gdp
Country Report : USA
Unemployment forecast
• The economic growth looks better as it grew 2.8% from the 1.8% recorded in the previous quarter
• The improvement largely came from businesses stockpiling goods they had produced, rather than selling them
• Unemployment rate edged down to 8.6%, as improvements in the labor market became evident
Country Report : USA
Economic Trends
• Consumer confidence snapped back more than forecast in November as Americans turned less pessimistic on the outlook for jobs and wages, one reason why spending has jumped at the start of the holiday season.
Country Report : USA
Economic Trends
Country Report : USA
Economic Trends
US stocks trim losses, but red on Greek woes.
1 year 5 days
Country Report : USA
Dow JONES AVERAGES
5 days 1 year
Country Report : USA
NASDAQ AVERAGES
• Obama announced US needs to do more to tackle unfair foreign trade practices and rebuild American manufacturing.
• Obama has set a target of doubling total U.S. exports between 2010 and 2015.
• Tax record and the middle & low income households.
Country Report : USA
Elections 2012
[EURO SUB-REGIONS]
The Drivers
M
The PIIGS
Staying Out
Smaller Eurozones
Out of the Zone
Triple A’s
Country
reports
The drivers
M France + Germany
M
The dRivers
Current status
GERMANY • Debt-to-GDP: 83.2% • Largest economy in Europe, fourth-largest in
the world (nominal GDP) in 2008 • Had better debt and deficit status than most
Eurozone members. o German trade surpluses to GDP increased
M
The dRivers
Current status
FRANCE • Debt-to-GDP: 81.7% • Second largest economy in Europe, fifth
largest in the world.
M
The dRivers
During the Crisis
GERMANY • Acted as a “voucher” that keeps economies
intact (e.g. €110 billion EU/IMF loan package over 3 years for Greece)
• Estimated to have made more than €9 billion out of the crisis as investors flock to safer but near zero interest rate bunds.
M
The dRivers
During the Crisis
FRANCE • 16 Nov 2011: France's bond yield spreads vs.
Germany had widened 450% since July. But on December the bond yield retreated.
• 13 Jan 2012: Standard & Poor’s downgraded France from AAA rating.
M
The dRivers
Where they stand Now
GERMANY • Merkel got 25 of 27 EU countries to sign
“Stability and Growth Pact”, which included agreements fiscal controls o binding limits on budget deficits, sanctions on
breaching deficit, debt limits o "essentially makes Keynesianism illegal” o may strangle growth
M
The dRivers
Where they stand now
FRANCE • In a weaker position due to lost AAA credit
rating from S&P. • Sarkozy won’t ratify new accord until after
election, but opposition leader Francois Hollande pledged to renegotiate if he win. o Bad for Franco-German relations
M
The dRivers
What they want...
GERMANY • Proposed to impose a European
commissioner on Greece, with veto powers over the Greek budget. (failed) o "Given the disappointing compliance so far,
Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time."
M
The dRivers
What they want...
FRANCE • Championed financial transactions tax
during the summit (e.g. unilaterally impose 0.1% within its borders starting August)
• Financial transactions levy designed to stop currency speculation. Sarkozy expects to annually raise €1 billion to stem deficit.
M
The dRivers
What they Don’t want...
GERMANY • Rejected suggestions from IMF, Italy and
Spain that size of future bailout funds should be increased (€440 billion).
• Believes that greater integration is needed first. Merkel may have exhausted Bundestag support after successive bailouts.
M
The dRivers
What they Don’t want...
FRANCE • Doesn’t want non-euro governments to be
given a bigger say in Eurozone. France initially asked to include only 17 countries.
• Doubts the financial viability of non-euro states, such as Poland.
M
The dRivers
Way FOrward
GERMANY • Eurozone suffering from currency imbalance.
At one end is Germany’s export economy. • Large trade surplus means it must either
increase savings or be a net exporter of capital in the future.
• Must lend more money to other countries to allow them to buy German goods.
M
The dRivers
Way Forward
FRANCE • Financial Transactions Tax good way to go.
o Two-pronged strategy to address the roots of the debt crisis (CDS, speculation, etc.) while raising revenues to address deficits
• Must muster political will to convince UK and the rest of the EU to pursue the FTT track.
M M
The “PIIGS”
Portugal, Ireland, Italy,
Greece and Spain
M
The P .I .I .G .S . Portugal
M
The P .I .I .G .S . Ireland
M
The P .I .I .G .S . Italy
M
The P .I .I .G .S . Greece
M
The P .I .I .G .S . Spain
M
The P .I .I .G .S . GDP growth rate
M
The P .I .I .G .S . Unemployment rate
M
The P .I .I .G .S . Government Deficit
M
Staying out
UK + Denmark
M
Staying out‒for good
Reasons for not Joining
• Losing its sovereignty • Result of the referendum
M
Staying out‒for good
UK economy
Grew by 0.9% during 2011.
M
Staying out‒for good
UK economy
Inflation fell to 4.2% during December
M
Staying out‒for good
UK economy
• Unemployment rose by 118,000 in the three months to November to 2.685 million, the highest level since summer 1994.
M
Staying out‒for good
Denmark economy
• Denmark's fiscal position remains among the strongest in the EU. Despite previously meeting the criteria to join the European Economic and Monetary Union (EMU)
• The Danish krone remains pegged to the euro.
M
Small e-zones
Belgium, Estonia, Cyprus,
Malta, Slovakia and Slovenia
M
Smaller eurozones
Estonia
• Eurozone’s fastest-growing economy. • Lowest Debt-to-GDP ratio, 6.7% • Highest export growth across the eurozone • Joined EU only in Jan 2011, and wants to be
among decision-makers. • Parliament approved EU fiscal pact calling
for tighter budget rules and sanctions.
M
Smaller eurozones
Belgium
• High public sector debt; needs low borrowing costs.
• Wants to avoid complex treaty change process, which will have to be approved by 9 parliamentary chambers.
M
Smaller eurozones
Belgium
• Unions protest austerity measures. Only 21% support the strikes.
M
Smaller eurozones
Cyprus
• Has EU's biggest public sector spending bill of 15.4%. Heavily exposed to Greek debt.
• S&P downgraded to junk; Moody's and Fitch downgraded to just above junk.
• High borrowing costs locked Cyprus out of international markets. Currently relying on €2.5 billion low-interest loan to meet this year’s finances.
M
Smaller eurozones
Malta
• Experienced positive growth of 2%, yet received rating downgrade from S&P.
• Wants to avoid long treaty change process,
but will accept Merkel-Sarkozy plan if there's no alternative.
M
Smaller eurozones
Slovenia
• Badly hit by the global crisis due to its dependency on exports.
• New government has been chosen (via snap election), so political aims unclear.
• Government deems Fitch, Moody's, and S&P rating downgrades as "excessive".
M
Smaller eurozones
Slovakia
• Only member-state which refused to participate in initial rescue package for Greece.
• Against Merkel-Sarkozy plan to stop smaller EU countries blocking permanent eurozone bailout fund decisions.
• PM rejects increase of European Stability Mechanism (bailout fund)
M
Out of the zone
Poland, Sweden, Latvia, Lithuania, Czech Republic, Hungary, Romania and Bulgaria
M
Out of the zone
Elections 2012 • Poland • Sweden • Latvia • Lithuania • Czech Republic • Hungary • Romania • Bulgaria
M
Triple a’s
Austria, Netherlands, Finland and Luxembourg
M
Triple a’s
indicators
AUSTRIA FINLAND LUXEMBOURG NETHERLANDS
Population (Millions)
8.417 5.401 0.515 16.695
GDP per Capita (PPP)
$ 41,805 $ 36,723 $ 84,829 $ 42,330
Unemployment Rate
4.100 7.821 5.755 4.200
Inflation Rate 3.200 3.114 3.582 2.500
Net Debt 52.36% -59.748% 19.656% 30.641%
M
Triple a’s
Crisis Developments
• Finland demanded for collateral for its share in second bailout package
• Austria and other states deemed this unfair • Other eurozone countries can demand for
collateral but under strict conditions
• Finland against plan to stop smaller EU countries from preventing bailout decisions
M
Triple a’s
LUXEMBOURG & NETherlands
• 2 of the 6 founding members of the EU
• Maintains AAA S&P credit rating o Long-term Outlook:
negative
M
Triple a’s
LUXEMBOURG & NETherlands
• S&P may lower rating in 2012/2013 o Luxembourg: GDP growth of 0.2% in 2012 • Economy’s dependence on large
financial sector; risk o Netherlands: If net borrowing
requirements consistently exceed 3% of GDP
M
Triple a’s
Austria
• Downgraded to AA+ last January 13 o Outlook: negative; possible further
downgrade in 2012/2013 • Weakening of Austrian banks’ balance
sheets may lead to recapitalization -Gov’t debt may exceed 80%
• Economic growth much weaker
M
Triple a’s
Finland
• Maintains an S&P credit rating of AAA o Negative outlook; at least 1-in-3 chance
of credit downgrade in 2012/2013 • Sustained government deficits • Sustained deviation in public finances
Synthesis
& conclusion
[wild wild west] Unraveling the euro and USA Crises
Go, magat, Miraflor, miranda, Muangsombut, navarro, punongbayan, sunglao, Timbang, tolentino
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