The Euro Crisis 20111016 V0 10 NOW

8/2/2019 The Euro Crisis 20111016 V0 10 NOW

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1Sarah Blaettner, Norman Walter, MA Int. Business Development, ESB, Hochschule Reutlingen, Alteburgstrae 150, 72762 Reutlingen, www.reutlingen-university.de,

The Euro Crisis

Sarah Blaettner & Norman Walter


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Agenda

1 Key Facts about the Euro Zone

2 Evolution of the Euro Crisis

3 Reasons for the Euro Crisis

4 Ways Out of the Crisis

5 Conclusions

6 Discussion


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Agenda





5 Conclusions

6 Discussion


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Economic and Monetary Union of 17 European Union (EU) member states that have adopted the euro

() as their common currency!

Definition Euro Zone

Member States

France

Germany

Greece

Ireland

Italy

Luxembourg

Malta

Netherlands

Portugal

Slovakia

Slovenia

Spain

Austria

Belgium

Cyprus

Estonia

Finland

1. Key Facts about the Euro ZoneGeneral Overview


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Member of European Union

Inflation rate must be no more than 1.5 percentage points higher than the average of the three best

performing countries

Government deficit must not exceed 3% of GDP

Government debt must not exceed 60% of GDP

Nominal long-term interest rate must not be more than 2 percentage points higher than in the three

lowest inflation member states.

Applicant countries should have joined the exchange-rate mechanism (ERM II) for 2 years

Criteria for Membership (declared in Maastricht Contract)

1. Key Facts about the Euro ZoneGeneral Overview


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European Union (EU)27 countries

European Monetary Union(EMU)

17 countries(synonym= Euro Zone)

1. Key Facts about the Euro ZoneInstitutional Structure


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Legislative

Law making

European Council

European ParliamentEuropean Comission

The Council of the EU

Court of Justice

Court of Auditors

European Central Bank

Convention of the EU leaders setting the political direction without real power

audits the EU finances

interprets the EU law

drafts proposals for newEU laws

debating and passinglaws

and budget with theCouncil

of the EU

passes all new EU laws

Political Institutions of the EU Non-political Institutions of the EU


important role for the EuropeanMonetary Union.


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ECB

ESCB

EcofinEuro Group

Economic

and FinancialComitee

EuropeanMonetary Union

European Central Bank (ECB) authorises the issue of bank notes in the euro zone assists national central banks sets the prime rate

European System of Central Banks (ECSB)consists of the ECB and the national central banks

maintains price stability

ECOFINtakes decisions regarding the exchange-rate policy

EURO Groupinformal and advisory body

Economic and Financial Comitee reviews the financial situation of the members

Institutions of the EMU



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Agenda





5 Conclusions

6 Discussion


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Banks losses and

recession leads togovernment

spending in Euro

counries

Credit rating

Agenciesdowngrade Greece

Greece implements

austerity measures

and asks Euro

member states for

support

Euro Zone and IMF

grant voluntarycredit to Greece

Elaboration of

European rescue

funding

2. Evolution of the Euro Crisis

2008/2009financial crisis:

October 2009: March 2010: April 2010:

Greece requests

money from thenewly implemented

rescue fund

2009 2010 2011 2012


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Euro Zone grants

further credit toGreece

Portugal and Spain

get affected

Creation of

European Financial

Stability Facility

(EFSF) by the euro

area member states

Euro Zone decides

to establishpermanent crisis

solution after 2013

to replace EFSF

European Stability

Mechanism

Portugal is

downgraded byrating agencies

May 2010: June 2010: July 2010: August 2010:

Ireland is



2009 2010 2011 2012


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Ireland asks Euro

Zone and IMF formoney

Euro Zone finance

ministers agree on

Irish aid package

from EFSF

Germany and

France call for Pactof Competitiveness

to increase

economic growth in

Europe

EU leaders agree

on "Euro Plus Pact

November 2010: February 2011: March 2011: April 2011:

Portugal is


once again

Portugal asks Euro

Zone and IMF for

money

Portugal receives

money from EFSF


2009 2010 2011 2012


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Greece is

downgraded to thelevel of CCC by

rating agencies

Euro Zone finance

ministers agree onsecond aid package

for Greece provided

that Greece

implements further

austerity measures

Rating agencies

downgrade 7 Italianbanks

Spain is

downgraded by

rating agencies

June 2011: July 2011: September 2011: October 2011:

Euro Zone finance

ministers discussabout extension of

EFSF


2009 2010 2011 2012


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to be continued

November 2011: December 2011: January 2012: ...


2009 2010 2011 2012


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1.00%

1.00%

2.00%3.00%

3.70%

3.70%

3.70%

4.00%

5.10%5.10%

5.80%

5.80%

5.90%

6.30%

9.50%10.50%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00%

Finland

Luxembourg

GermanyMalta

Netherlands

Austria

Belgium

Italy

SlovakiaCyprus

Portugal

Slovenia

France

Spain

Greece

Ireland

Maastricht limit: 3%

euro-zoneaverage:

4,3%

2. Evolution of the Euro CrisisCurrent Situation Budget Deficit 2011


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17.20%

42.80%

44.80%50.60%

62.30%

63.90%

68.00%

68.10%

73.80%82.40%

84.70%

97.00%

101.70%

112.00%

120.30%

157.70%

0.00% 20.00% 40.00% 60.00% 80.00% 100.00% 120.00% 140.00% 160.00% 180.00%

Luxembourg

Slovenia

SlovakiaFinland

Cyprus

Netherlands

Malta

Spain

AustriaGermany

France

Belgium

Portugal

Ireland

Italy

Greece

euro-zoneaverage:

87,7%

Maastricht limit: 60%.

2. Evolution of the Euro CrisisCurrent Situation Public Debt 2011


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3.70%

4.30%

5.40%

6.00%

6.10%

7.50%

7.90%

8%

8.40%9.90%

12.30%

12.80%

13.40%

14.50%

15%

21.20%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00%

Austria

Netherlands

Cyprus

Malta

Germany

Belgium

Finland

Italy

SlovaniaFrance

Portugal

Luxembourg

Slovakia

Ireland

Greece

Spain

euro-zoneaverage:

10,1%

2. Evolution of the Euro CrisisCurrent Situation Unemployment 2011


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4.00%

5.80%

6.30%

9.50%

10.50%

0.00% 5.00% 10.00% 15.00%

Italy

Portugal

Spain

Greece

Ireland

Budget Deficit 2011

8%

12.30%14.50% 15%

21.20%

0%

5%

10%

15%

20%25%

Italy Portugal Ireland Greece Spain

Unemployment 2011

68.10%

101.70%

112.00%

120.30%

157.70%

0.00% 50.00% 100.00% 150.00% 200.00%

Spain

Portugal

Ireland

Italy

Greece

Public Debt 2011

Greece CCC

Ireland BA1

Portugal BA2

Italy A2

Spain AA2

Credit Rating 2011

2. Evolution of the Euro CrisisCurrent Situation The PIIGS

Portugal

Italy

Ireland

Greece

Spain


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Agenda





5 Conclusions

6 Discussion


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1. Lavish Finance Sector

2. Seductive Interest Rates

3. Weaknesses in Maastricht Treaty

4. Generous Accession Policy

5. Different Economic Potential

3. Reasons for the Euro Crisis

Possible Reasons


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Banks grant cheap credit on real estate during boom

After burst of bubble governments of member states have to compensate bank losses and recession

1. Lavish Finance Sector

Low money market interest rate offers favorable financing conditions to instable member states

Ireland, Spain, Greece and Portugal increase their debt and the speculation with real estate

2. Seductive Interest Rates

Countries do not disciplines other countries for the non-fulfillment of the defined criteria in order to protect

themselves

Maastricht Treaty does not contain rescue mechanism for insolvent countries (originally Non-Bail-Out

clause)

3. Weaknesses in Maastricht Treaty



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Countries join the Euro Zone without fulfilling the accession criteria regarding government debt and

government deficit

4. Generous Accession Policy

Negative trade balance of non-competitive member states lead to disparity within the Euro Zone

Strong countries have to compensate

5. Different Economic Potential



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Euro Zone Current Account Balance



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Agenda





5 Conclusions

6 Discussion


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1 Small EU Reform

2 Radical Haircut

3 Three-Pillar Rescue

4 Europe as a Political Union

5 Europe of two Directions

6 Nations Reloaded

4. Way out of the Crisis

Possible Solutions


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Stricter set of rules combined with a modified institutional structure

Stability and Growth Pact gets empowered and can react faster ( Sanctions still need a majority decision)

Constant EU bail-out package gets incorporated in the EU treaties

1. Small EU Reform

Restructuring of heavily indebted nations within the EU

Creditors loose their money to a certain extent or at least have to wait for the repayment

Need for an increased bank rescue fund to save the national banks from bankruptcy

2. Radical Haircut

Proposal from the council of economic experts ( =Wirtschaftsweisen)

Stronger Supervision of the European Stability and Growth Pact (Sanctions decided by EU commission)

Integrated commission for European Financial Supervision with more competence

Introduction of the European Stability Mechanism (2013)

3. Three-Pillar Rescue

Three-Pillar Rescue of the European Monetary Union

Stronger

Supervision of the

European

Stability and

Growth Pact

Integrated

Commission for

European

Financial

Supervision

European Stability

Mechanism (ESM)


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Proposal from Jean-Clausen Juncker, head of the Euro-Group and prime minister of Luxembourg

Need for a stronger political union and more european solidarity

European economic government (integrated tax and budget policies); Introduction of euro-bonds

4. Europe as a political Union

Introduction of two currencies within the European Monetary Union

North-Euro under the leadership of germany (Austria,Benelux countries and Finland) Hard currency

South-Euro under the leadership of France (Spain, Italy, Greece, Portugal etc.) Soft currency

5. Europe of two Directions

Break-up of the European Monetary Union

Reintroduction of the old national currencies

Resolution of the ECB National central banks are responsible for the national monetary policies again

6. Nations Reloaded


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Agenda





5 Conclusions

6 Discussion


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5. Conclusion

Stuckin

themiddle!


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Agenda





5 Conclusions

6 Discussion


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http://www.eu-info.de/euro-waehrungsunion/5300/5318/5573/

http://www.efsf.europa.eu/attachments/faq_en.pdf

http://www.europarl.europa.eu/document/activities/cont/201009/20100908ATT81666/20100908ATT81666EN.pdf

http://www.fr-online.de/fotostrecken-wirtschaft,1473648,4861632,item,2.html

http://www.bundesregierung.de/Content/DE/Artikel/2011/05/2011-05-17-portugal-eurohilfe.html

http://www.insm.de/insm/Publikationen/Dossiers/Steuern-und-Finanzen/INSM-Dossier-Euro-Krise/Warum-der-Euro-in-die-Krise-rutschte.html#jump1

http://www.economist.com/node/21530960

European Comission

http://www.eurotreaties.com/maastrichtec.pdf

European Union http://europa.eu/about-eu/institutions-bodies/index_en.htm

European Parliamenthttp://www.europarl.europa.eu/parliament/expert/displayFtu.do?id=73&ftuId=FTU_5.2.html&language=en

Sources

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http://www.youtube.com/watch?v=t_SZAY_dQ7U

The Euro Crisis 20111016 V0 10 NOW

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