1. The world financial instability and the Euro zone crisis - Chapter 2 Jacques SAPIR CEMI-EHESS

2. 2. The sovereign debt issue

3. 1. The sovereign debt general increase in the Euro zone has been a direct consequence of the crisis. A debt level inferior before the crisis to what was the situation in the USA and Japan. –The specific US situation. –The Japanese problem. A sharp reaction to the crisis. A typical “asymmetrical shock” situation?

6. 2. However economic divergence has played and important role. The Euro zone has been since its creation a low-growth zone among industrialized countries. Inflation has not been standardized despite the fact that monetary policy has been the same for every country. The burden of unemployment (in static and in dynamic) is not the same for every country.

9. 3. Specific rules have transformed the debt into a Ponzi scheme. –The Maastricht and Lisbon treaties rules concerning Central Banks, the ECB and the funding of the budget deficit. –Impact of interest rates hike on the budget deficit. –The Growth issue. –Is debt feeding debt?

13. 4. The Greek case. –Was the huge increase of the debt to GDP ratio the result of the framing of data? –What are income sources of the Greek economy. –Rescue plans: n°1 and n°2. –What is the situation, now? –How could a default be avoided?

15. Total amount to be funded till 2019 under the current deficit assumptions

16. 5. Could the Euro zone adjust to the situation without breaking its back? –What is the actual situation? –Austerity plans and their cumulative effects. –Historical precedents. »Germany (Brünning) »GB (MacDonald) –The comparison with Russia (1993-1998). –The deflationary spiral. –Budget Cuts are inducing massive a recession. –The recession is inducing a contraction of Budget revenues. –Is there a solution?