1. MANAGING THE FINANCIAL CRISIS
Presentation by John Verrinder
Eurostat Unit C3

2. A financial and economic crisis
Summer 2007 – strains in financial markets
Tightening of money markets
Downgrading of ratings of some assets
Summer 2008 – banking and market crisis
Money markets almost closed ; bank lending falls
Declines in equity markets
Cases in UK and Germany, then Fortis, Dexia…
Autumn 2008 – real economy
Declines in industrial production and GDP
Rising unemployment
Falling consumer price indices
Falling Euro

3. Short term interest rates (3 months)
Source: Eurostat (irt_st_m), ECB

4. Long term interest rates (annual rate %)
Source: ECB

5. Bank lending – Euro area
Source: Eurostat (sector accounts)

6. Euro exchange rate
Source: Eurostat (ert_bil_eur_m), ECB

7. Government responses to the financial crisis
One-off rescue operations
Systematic interventions
Recapitalisation (quoted equity, preference shares, etc)
Lending
Guarantees (on deposits, bank borrowing, bank assets)
Purchase of assets (+ bad banks)
Central Bank operations
Cuts in interest rates
Exchange of assets
Purchase of assets

8. Impacts on government finances
Mainly on government debt (raising funds for recapitalisation, lending, asset purchase)
Possibly on deficit in some circumstances
Government pays too much for shares or other assets
Debt cancellation and assumption
Guarantee fees and calls
Eurostat guidance awaited - consistency
Central Bank is not part of “government” so its operations are separate

9. Impacts of loans and guarantees

10. The real economy – Monthly EU27 Manufacturing production (volume)
Source: Eurostat (seasonally adjusted)

11. The real economy - Quarterly EU27 GDP
Source: Eurostat (Seasonally and working day adjusted)

12. The real economy - Unemployment rate
Source: Eurostat (seasonally adjusted)

13. Government interventions to support the “real economy”
Fiscal approach
Agreements on fiscal stimulus
Expenditure side (bring forward projects, social benefits..)
Revenue side (tax cuts..)
Rescue operations for non-financial corporations
Support to small businesses
Loans
Guarantees
Administrative changes (e.g VAT)
Etc …