The European Debt Crisis. What caused the global recession of 08? And thus caused the European debt crisis.

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Presentation transcript:

The European Debt Crisis

What caused the global recession of 08? And thus caused the European debt crisis

Basic Economics - The Bank Run “It’s a Wonderful Life”

America Sneezes and the World gets Pneumonia! The Housing bubble bursts 2006

The bubble burst By August 2008, 9.2% of all U.S. mortgages outstanding were either delinquent or in foreclosure. By September 2009, this had risen to 14.4%. Between August 2007 and October 2008, 936,439 USA residences completed foreclosure.

The American Recession of 2008 Adjustable rate mortgages/Subprime mortgages Lehman Brothers & mortgage securities (MBS) Fannie Mae Moodys and other bond rating agencies Property taxes

What Caused the Crisis? American Housing Market UK Housing Market Profligacy in the PIIGS Decades of Low Interest Rates Inflation in Wages and Goods Overleveraged Banks Lack of competitiveness

European Exposure to US Housing Bonds Country Banks Losses Britain Royal Bank of ScotlandUS $15.6 bn. HBOS US $9.5 bn. Barclays US $6.7 bn. Switzerland UBS US $48.6 bn Credit Suisse US $13.7 bn. - Germany BayernLB US $14.4 bn. IKB Deutsche Industriebank US $14.0 bn. Deutsche Bank US $12.7 bn France BNP ParibasUS $5.8 bn.

Debt in the Euro Zone (17 of 27states)

Can the Governments in Greece, Portugal, Ireland, Spain and most importantly Italy cover their $4.2 trillion in borrowing without wrecking European banks?

Greece as a Case Study The darkening clouds of civil disobedience and anarchy in Greece

European Exposure The end of EMU – “Europe’s Melancholy Union”

Will Greece bring down the Euro?

Which Path to Recovery? Austerity (Taxes, spending cuts) or Growth (Tax and regulation cuts)

US Response – Ambassador Smith (CU Grad) and Secretary of State Clinton The Fed v. The European Central Bank

The US Solution vs. the European one

What can they do? The Greek gray economy/Greek culture Euro zone writes off half of the Greek debt – EFSF Do the Germans, French and Dutch have to continue to pay? Austerity and taxes vs. Priming the pump Growth – Competitiveness, bureaucracy, deregulation, labor & the welfare state (The German example) The ageing population Integrate or Disintegrate – Break up the Euro or even the EU (Nationalists – Anti-globalists) – More Sovereignty to Brussels