Situationer on the US and Debt Crisis. Group presentation for Econ 203 (handled by Prof. Renato Reside).

1. wild wild west
Unraveling the euro and USA Crises
Go magat Miraflor miranda Muangsombut na arro
v
punongba an sunglao Timbang tolentino
y

2. REPORT
OUTLINE

of the crisis
overview

• USA Reports • Smaller
Country
• Germany
• PIIGS Economies
• Out of Zone
France • a Euro STates
• UK Denmark

Synthesis

3. ov e rv i e w
Of the crisis

4. Overview
of the crisis

6. Overview
of the crisis

7. Size according to size of
total government spending
as a % of GDP.

8. co u n t ry
reports

9. Country Report
USA

10. Country Report USA
Indicators GDP
• 2011: 1.7%
o Q3: 1.8%
o Q4: 2.8%

11. Country Report USA
Indicators Unemp Rate
• December 2011: 8.5%

12. Country Report USA
Indicators Inflation
• Annual inflation rate (2011): 3%

13. Country Report USA
Financial Crisis Update
• 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.

14. Country Report USA
Narrowing debt gdp
Debt levels remain high…

15. Country Report USA
Economic Growth

16. Country Report USA
Consumption gdp

17. Country Report USA
Unemployment forecast

18. Country Report USA
Economic Trends
• 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

19. 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.

20. Country Report USA
Economic Trends
US stocks trim losses, but
red on Greek woes.

21. Country Report USA
Dow JONES AVERAGES
1 year
5 days

22. Country Report USA
NASDAQ AVERAGES
5 days
1 year

23. Country Report USA
Elections 2012
• 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.

24. Country
reports
[EURO SUB-REGIONS]
Smaller
 The Drivers  Eurozones
M The PIIGS  Out of the Zone
 Staying Out

Triple A’s

25. The drivers

M    
+ Germany
France

26. 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    

27. The dRivers
Current status
FRANCE
• Debt-to-GDP: 81.7%
• Second largest economy in Europe, fifth
largest in the world.
 M    

28. 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    

29. 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    

30. 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    

31. 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    

32. 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    

33. 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    

34. 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    

35. 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    

36. The dRivers
W y FOrw
a ard
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    

37. The dRivers
W y Forw
a ard
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    

38. The PIIGS
 M    
Ireland, Italy,
Portugal,
Greece and Spain

39. The P I I G S
Portugal
 M    

40. The P I I G S
Ireland
 M    

41. The P I I G S
Italy
 M    

42. The P I I G S
Greece
 M    

43. The P I I G S
Spain
 M    

44. The P I I G S
GDP growth rate
 M    

45. The P I I G S
Unemployment rate
 M    

46. The P I I G S
Government Deficit
 M    

47. Staying out
 M    
+ Denmark
UK

48. Staying out for good
Reasons for not Joining
• Losing its sovereignty
• Result of the referendum
 M    

49. Staying out for good
UK economy
Grew by 0.9% during 2011.
 M    

50. Staying out for good
UK economy
Inflation fell to 4.2% during December
 M    

51. 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    

52. 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    

53. Small e zones
 M    
Cyprus,
Belgium, Estonia,
Malta, Slovakia and Slovenia

54. 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    

55. 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    

56. Smaller eurozones
Belgium
• Unions
protest
austerity
measures.
Only 21%
support the
strikes.
 M    

57. 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    

58. 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    

59. 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    

60. 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    

61. Out of the zone
 M    
Poland, Sweden, Latvia, Lithuania, Czech
Republic, Hungary, Romania and Bulgaria

62. Out of the zone
Elections 2012
• Poland
• Sweden
• Latvia
• Lithuania
• Czech Republic
• Hungary
• Romania
• Bulgaria
 M    

63. Triple a s
 M    
Netherlands,
Austria,
Finland and Luxembourg

64. Triple a s
indicators
AUSTRIA FINLAND LUXEMBOURG NETHERLANDS
Population 8.417 5.401 0.515 16.695
(Millions)
GDP per $ 41,805 $ 36,723 $ 84,829 $ 42,330
Capita (PPP)
Unemployment 4.100 7.821 5.755 4.200
Rate
Inflation Rate 3.200 3.114 3.582 2.500
Net Debt 52.36% -59.748% 19.656% 30.641%
 M    

65. 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    

66. 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    

67. 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    

68. 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    

69. 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
 M    

70. Synthesis
conclusion

71. wild wild west
Unraveling the euro and USA Crises
Go magat Miraflor miranda Muangsombut na arro
v
punongba an sunglao Timbang tolentino
y