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European World Crisis(Portugal)
Presented by:
Mustafa Shahid
Affan Hussian
Asim Farooq
Hamza KhanFehar Arshad
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Introduction To Portugal Located in South Western Europe
Capital is Lisbon
Connected with Spain and Atlantic Ocean
Governmental System is Parliamentary System, Unitary State &
Constitutional Republic
A few Institutions:
European Commission
European Parliament
European Maritime Safety agency
European Monitoring Center for Drugs & Drugs Addiction
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Institutional Sense Institutions are structures and mechanisms of Social Order
Prevailing for Individuals
Behavioural patterns of a society
Central Concern for Law
Political Rule Making and Enforcement
Evolution of Institutions
Government needs Institutions
Banks are Institutions as well
School, Colleges & Universities are Institutions as well
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PIIGS To know what PIIGS stand for
P- Portugal
I-Italy
I-Ireland
G-Greece
S-Spain
Why are these countries called PIIGS?
World Economic Recession of 2008-2009
They were the most unstable economies in European Union
Popularity due to their National Debts
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Governments Role in European Financial
Crisis Very Prominent role
Privatization
Fiscal Austerity
Foreign Direct Investments
Trade Liberalization
All done by IMF
Implemented by Government through Institutions
Government bought loans from Germany, UK, France, Spain &Greece
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Reasons For Portugal Crisis A glance at EU loans (starting of Crisis)
Greece owes $367 Billion mostly to other European Economies
Ireland owes $865 Billion mostly to other European Economies
Spain owes $1 Trillion
Owes to France Britain &Germany
Italy owes $1 Trillion
Spain owes to Italy about $41 Billion
Italy Owes to Spain about $27 Billion
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Serious Crisis after World Recession
Being a member of PIIGS survival was on Sovereign Debts
Sovereign Debt = External Debt
Debt obtained using Lenders Currency
High risks involved for Defaulting
Decrease in Value Power of Currency
For example one room to rent costs 400
Monthly Income about485
Then how do you expect people to Survive?
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Increase in social security problems due to Crisis
Causing more threat of unemployment
Decrease in public spending cuts in order to pay off loans
Increase in Value Added Tax (VAT)
Leading to more unemployment
Removal of Subsidies
Private Sector Debt
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To Whom Portugal Owes? Foreign debt amounts to 251% of GDP
Equivalent to about 38.000 Euros per person
Owes to Spain about 67.5 Billion Euros
Portugal owes Germany 26.6 Billion Euros
Portugal owes France 19.1 Billion Euros
Portugal owes UK 18.9 Billion Euros
Portuguese banks owe 7.5 Billion Euros to Greece.
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IMF and Euro Zone
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IMF And Portugal European Union a heavy Debtor of IMF
Greece, Ireland & Portugal given loan of more than $100 Billion Each
Under Extended Fund Facility IMF approves a Loan of 1.48 Billion Euros
Total EFF arrangement about 21.13 Billion Euros ( as of July, 2012)
In May, 2011 IMF approves a loan of 26 Billion Euros
25.2 Billion Euros from European Union
Total Bail out package of $100 Billion
A heavy influence of Portuguese Crisis by IMF and its Policies
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Economic Downfall Unemployment 10.4%
Prices Rising
Pensions cut
Wages cut Collapse of housing market
Drop in foreign Investments
Floundering domestic industries
Pumping Public Money into Banks
Banks to meet European Banking Authority dead line
Weakest growth rate in Euro Zone
Number 46th in Economic Crisis
Growth less than a 1% over the last decade
Any bailout package or help will come with strings attached
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European Government Efforts Short Run Solutions
Focus more on Public Expenditures
Fiscal Consolidation
Structural Reform
Fiscal Austerity Measure (Mostly)
Financial Stability
Writing down who owes what
How much debt has been paid in written form
Losses have to be allocated in a manner
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Euro states to provide upto 200 Billion Euros Bilaterally to IMF
150 Billion should be in Euro Currency
Following Strict Fiscal Rules Correction of political tensions
Containment of sovereign debts
Print more money and pay off peripheral countries loan
Mostly bailout packages by Government
ECB buying Government bonds
LTRO (Long Term Refinancing Operation)
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Default a Problem? Default risk tells about a bond holder might become insolvent and not honor
his/her debt obligations
Defaulting would mean the whole economic ethos has broken down
Banks to hold assets relative to the debt they hold
Defaulting on Debt would mean decrease in Banks assets
If banks collapses so does the economy
Defaulting though is not as bad as it is termed
USA defaulted 3 times in 20thcentury the world didnt end
Default NOW or Suffer a More Expensive Crisis Later
Defaulting does not End the World rather it pushes to form a new system of
Economy
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Start Fresh or Walk Away A fresh start will only come by defaulting in present
You cant rely on short term solutions for ever
Sooner or later you will have to default
Defaulting now would be painful but at a lesser expense than defaulting
later
Defaulting would result in Capital Flight but to where?
You CANNOT walk away from DEBT
Portugal in heavy terms & conditions of debt from both ECB and IMF
Loans are given on the terms & conditions of Creditor & its will to speculate
a certain economy
The question of Walking Away has no place here
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Political Issues Economics and Politics two sides of a same coin
Euro Zone ONE country away from dismantling
Measures such has increasing Taxes and cutting budgets had, have and will
lead to great protests
You CANNOT operate in the same circle and find answers
Over lapping of interests of EU economies, participating in Political Issues
Any country who quits EU will change the discourse of the Global Economy
and World Financial Markets This constant threat is contributing to more crisis and is Political
Racism Crisis is also increasing with the increase of Political Economic
Financial Crisis
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Fiscal Austerity The Answer? According to Joseph Stieglitz Fiscal Austerity is a tool used by IMF
European Union Using the same
Fiscal Austerity measures were used by all the 17 countries
Led to more unemployment and political rupture
Portugal in the terms of 2012 declined to apply Fiscal Austerity Measures
Fiscal Austerity includes a decrease in spending and increase in Taxes
When that happens Spending Shrinks which is against the logic of ShortTerm Solution.
It slows Economic Growth
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More problematic for high debt countries
Due to this measure of Fiscal Austerity the entire region slipped into
another recession in 2011
Euro Zone Fiscal Austerity measures are over lapping by its countries
Euro Zone Fiscal Austerity measure could possibly create a new Crisis
in 2013
The whole idea of Fiscal Austerity is to put burden on the consumers
This can not work every time
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Future Outlook European Union ONE country away from a New Crisis
The collapse of any country can be delayed but not FINISHED
Greece above all seems to be number one to collapse
Euro Zone collapse will be a THREAT Globally
Short Run Measures are DONE!
Defaulting seems to be out of the way
Other way out of can be if loans are Forgiven
Another way out of it would be through Gold Standard
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But Eventually only the country holding more Gold will survive
Portugal holding 382 Tons of Gold
The idea is not to sell the stuff. Instead, the proposal is to bring down
borrowing costs by using gold to guarantee the partial repayment of bonds toinvestors in case of a default
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Broke Economies Portugal
Ireland
Italy
Greece
Spain
Germany
France
All of these are Broke Economies
What are broke Economies?
The ones that are already in debt and loaning out
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QUESTIONS! HOW CAN ONE BROKE ECONOMY LOAN OUT ANOTHER BROKE
ECONOMY?
IF BROKE ECONOMIES CANT GIVE MONEY BACK HOW WILL
THEY GET OUT OF IT?
THROUGH BAIL! THINK AGAIN
WHERE WILL THE MONEY FOR BAIL COME?
WHERE IS PORTUGAL GOING TO GET MONEY THAT IT OWES TO
GERMANY IF GERMANY CANT GET BACK THE MONEY THAT IT
LENT TO ITALY?
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Conclusion Money is DEBT Printing Money for Bailout Packages
Broke Economies lent money to other Broke Economies IMF and there 4 Policies played a role in Euro Zone Crisis
Fiscal Austerity Leading to a new Crisis in 2013
Portugal after Greece will be the second to Default
This will change the whole ethos Modern Economics and Finance
Interest Rates needs to be Broken