Broad Failures of Governmental Policies within Euro Zone Leading to Economic Crises

Broad failures of Governmental Policies within

Euro Zone leading to Economic Crises

KOU XiaotingABOU SALEH HabibGIRDAL SylvainMITCHELL RodolfoMOHREZ Rafael

Presentation Outline

Introduction

What happened ?

Greece

Spain

Why it happened ?

Possible Solutions & Preventions

Introduction

Same Monetary Policies

Different Financial Polices

EU countries are tightly intertwined

The financial crisis in 2008 affect EU

EU is a Monetary Union

Finical Polices

VS

What happened ?

Overspending Policies:

• Benefit programs (public sector, government committees, Olympic Airlines)

• Early retirement pensions which allows Greeks to retire in their 40s•Overspending far more than most other EU members on arms

Wrong Policies:•Absence of proper tax payments from citizens balanced with proper tax collection from the government •Absence of proper allocation of defense budget (80 % spent on administrative and staff payments)

Greece entered EMU without preparation and fell into: the debt trap and the competitiveness trap

Policies and Root Causes

Spain

Real Estate Bubble

+

Trade Balance deficit

+ Financial Crisis

=> Spain Debt Crisis

Housing price

Housing investment

Unemployment (%)Debt (% GDP)Deficit (% GDP)

Trade Balance (Billions of €)

Why it happened ?

Analysis

Before 2007

Taxes

Borrowing

Spending

Deficit spending

After 2007

Dry money market Difficulties to refinance

debts Austerity measures

Possible Solutions & Preventions

• Cutting spendings• Borrowing less• Paying back more debt• But...

• Nobody wants austerity• It doenst balance the government accounts automatically• It will not prevent it from happening in the future

Political organization with authority to set fiscal policy in the Euro Area

• Cutting spending• Setting laws• Increasing taxes• Preventing excess

Can Europe take the necessary steps to create a Fiscal Union alongside the Monetary Union?

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