The European Debt Crisis. What caused the global recession of 08? And thus caused the European debt crisis.

The European Debt Crisis

What caused the global recession of 08?

And thus caused the European debt crisis

Basic Economics - The Bank Run

• “It’s a Wonderful Life”

America Sneezes and the World gets Pneumonia!

• The Housing bubble bursts 2006

The bubble burst

• By August 2008, 9.2% of all U.S. mortgages outstanding were either delinquent or in foreclosure. By September 2009, this had risen to 14.4%. Between August 2007 and October 2008, 936,439 USA residences completed foreclosure.

The American Recession of

2008

• Adjustable rate mortgages/Subprime mortgages• Lehman Brothers & mortgage securities (MBS)• Fannie Mae• Moodys and other bond rating agencies• Property taxes

What Caused the Crisis?

• American Housing Market• UK Housing Market• Profligacy in the PIIGS• Decades of Low Interest Rates • Inflation in Wages and Goods• Overleveraged Banks• Lack of competitiveness

European Exposure to US Housing Bonds

Country Banks Losses• Britain

Royal Bank of Scotland US $15.6 bn. HBOS US $9.5 bn. Barclays US $6.7 bn.

• Switzerland UBS US $48.6 bn

Credit Suisse US $13.7 bn. -• Germany

BayernLB US $14.4 bn.IKB Deutsche Industriebank US $14.0 bn. Deutsche Bank US $12.7 bn

• FranceBNP Paribas US $5.8 bn.

Debt in the Euro Zone (17 of 27states)

Debt in the Euro Zone (17 of 27states)

• Can the Governments in Greece, Portugal, Ireland, Spain and most importantly Italy cover their $4.2 trillion in borrowing without wrecking European banks?

Greece as a Case Study

The darkening clouds of civil disobedience and anarchy in Greece

European Exposure

The end of EMU – “Europe’s Melancholy Union”

Will Greece bring down the Euro?

Which Path to Recovery?

Austerity (Taxes, spending cuts) or

Growth (Tax and regulation cuts)

US Response – Ambassador Smith (CU Grad) and Secretary of State Clinton

The Fed v. The European Central Bank

The US Solution vs. the European one

What can they do?

• The Greek gray economy/Greek culture• Euro zone writes off half of the Greek debt – EFSF• Do the Germans, French and Dutch have to continue to

pay?• Austerity and taxes vs. Priming the pump• Growth – Competitiveness, bureaucracy, deregulation,

labor & the welfare state (The German example)• The ageing population• Integrate or Disintegrate

– Break up the Euro or even the EU (Nationalists – Anti-globalists)– More Sovereignty to Brussels