The European Debt Crisis

The Netherlands

Analyzing GDPs in Europe

Principle 8- A country's standard of living depends on its ability to produce goods and services

Y = C + I + G+ (X - M)

One of Europe's strongest economies- focused on international commerce

17th on Economic Freedom Index

Healthcare, childcare, education highly subsidized

High tax on income

Y = FCE + GCF + (X - M)

Between 2001 and 2014

In spite of that...

Impact of the Housing Bubble

Netherlands:

• GDP increased by 104%
• FCE increased by 105%
• GCF increased by 64%
• NX increased 240%
• helped dampen the effects of 2008 housing crash

Greece:

• GDP increased by 75%
• FCE increased 88%
• GCF decreased by 28%
• NX increased 61%
• Greece has more imports than exports

Household debt to income ratio: 249%

Huge mortgages

Three big problems:

Plummeting Global demand

Problems with bank balance sheets

Decline in producer and consumer confidence

Unemployment is low

Public debt remains modest

The Netherlands maintains a trade surplus

Expected to recover from financial crises of 08-09 by the end of this year.

Unemployment

• Greece: 24.2%
• youth unemployment: 53.7%
• Netherlands: 5.3%
• youth unemployment: 11.5%

Devaluation of Currency

Principle 10- Society faces a short-run trade-off between inflation and unemployment

A government prints more money, devaluing the currency, increasing exports, tourism and investments.

This can't happen with the Euro.

Where the Euro is now...

Value of the Euro hit a twelve year low- $1.09

Travel to Europe

cheaper in the short

term

As Euro declines, exports from Europe will be more competitive, imports will increase in price

So, why are some European Countries Facing Financial Difficulties?

Is it because of high social spending?

Meanwhile, in Greece

Is it high social spending?

• Both the Netherlands and Greece seem to spend money on social programs.
• Corruption may be why the distribution is unfair.

Bailouts

Is it because workers in some countries are lazy?

$264 billion in international bailouts since 2010 for sovereign debt crisis

Myriad structural problems:

• rising unemployment
• tax evasion
• unfriendly business environments
• aging demographic

An economy based on service, industry, and tourism.

Ranked 130th on economic freedom index

Household debt is 112.4% of

disposable income

Already in sizeable debt before

joining the Euro

Overall debt to GDP: 179.8%

• Taverna culture?
• Workers in Greece work an overall higher number of hours per year than the average Dutch or German worker.

More likely, has to do with trade and how much a country can afford

Austerity Measures

• The Netherlands has been able to sustain a level of social spending without taking on large public debt.

And Inefficient Government

• Corruption and tax evasion are huge factors for Greece
• Greeks won't pay a government that doesn't work, and then it lacks resources.

What if Greece left the Euro?

"Grexit"

A new Drachma (or other currency) would be worth much less than the Euro

• Devalued up to 50%
• Imports would increase
• Inflation would soar
• Unemployment would continue to rise

Businesses would suffer greatly

• Contracts would have to be rewritten/renegotiated
• More difficult to repay debts

Some say Greece should temporarily leave the Euro

What if the Netherlands left the Euro? "Nexit"

Might face better long-term economic success

• Euro would devalue if stronger countries changed currencies, boosting weaker countries

Would have more control over their economy

More political than economical to stay

So what happens now?

A Global Credit Crunch

• Departure from the Eurozone is unlikely.
• Austerity measures are likely for countries like Greece.
• Aid could be directed more toward reforms, less toward repayment of debts.
• Structural changes will need to happen.

European banks lost money, leading to:

• strict lending requirements
• decreased investment
• rising unemployment
• increased government debt

Trouble in the late 2000s

Liquidity issues began in European banks in 2008 following housing collapse in US

Countries with a lot of debt could no longer borrow

• Portugal
• Ireland
• Italy
• Greece
• Spain

Global Credit Crunch Begins

The Eurozone

The Netherlands

Greece

• European Union (Eu) first established in 1958

• Eurozone established 1999 as monetary union

• 19 of the 28 EU countries adopted the Euro as currency, European Central Bank (ECB) created

Team A-Hero-O:

Robbie Castillo

Alex Covington

Susan Lund

Robby Rodriguez

Katy Woodward

Why are Some European Countries Having Financial Difficulties?