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Causes of the European financial crisis

Todo aquello que te gustaría saber y nunca te atreviste a preguntar
by

C5004 UPC

on 22 February 2013

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Transcript of Causes of the European financial crisis

Has the government overflown his economic capacities? Sophistication of derivatives market (options and futures products):
Bet down
(CDS) Since the 90s: freedom of capital movement Conclusions Serious problems having a single currency without a political union.
To "save" a country, do we sink economies?
Blackmail of the financial system to the political system.
National policies against to a financial system with international power.
A few people take profit from the problems of many. Irregularities on the national greek accounts Causes of the European financial crisis 2007
Financial crisis
(USA) "Subprime" mortgages
(NINJAs = Non Income, Non Job or Asset)
Collaterized Debt Obligations Auditor of the accounts: Goldman Sachs.
Mario Draghi, ECB president Banking confidence's Crisis Main victims:
Spain and Ireland Credit Crunch Recession Public need for funding Needing of selling huge amount of public debt Brokers "rent" public debt.

They sell it very fast expecting to buy back it cheaper and return it to its owner.

These kind of operations can report huge benefits. Monetary Union
Continuous agreements and disagreements.
Political and fiscal disunion Since 2008 Merkel's party is continously loosing the local elections.
There's an ambiguous attitude: german people is fed up of paying the south european countrie's waste. Moody’s
Berkshire Hathaway
Warren Buffet (10%)
Standard & Poor’s
McGraw Hill
Fitch
Marc Ladreit de Lacharrière (432 Forbes list) They require a reduction of the deficit budget balance in the european countries with financial problems:
+ Taxes
- Public spent Decrease of public debt's quality

Public debt bet down


Requirement: + deficit budget balance reduction "Tobin Tax"?
(No: 50% financial european movements pass through the "City") (-) European comission still requires constraint policies to the rescued countries. French and german banks
Own greek public debt
Cut Off, 50% (100.000 mill.) Public debt bet down: Rating companies European banks bought packages of "subprime" mortgages Vicious circle: increase in the risk premium Europe Germany Creation of a rescue found to support european issued public debt.
(Done it) Potential solutions: Pros and Cons: (+) If the public debt rescue found is huge enough, it can break speculation. Second Greek rescue Origins and precedents of the financial crisis Banks are forced to increase their turnover Detonators of European crisis From january 2002 to january 2006, Draghi was vice-president
in Europe of Goldman Sachs.

During his mandate, this company advise Lukas Papademos
about how to hide the truth of greek deficit budget.

This fraud drove Greece to his financial crisis 2009-2013... Crisis Allan Greenspan
decrease U.S.A. interest rates to 1% 2001 Open season to speculative business European rescue policies: Are we witnessing passively to a financial blackmail? ECB buy public debt to the affected countries? Eurobonds (Yes/No: Statutes) Change of scenery? Other victims:
Portugal, Italy and Greece Everything that you would like to ask and you haven't done it yet Has everybody in Spain become crazy? Introducing ourselfs Michalł Zawisza
Marc Sitges
Pablo Rodríguez
Aleix Roca
Helena Garcia
Jose Cabré Wednesday's meetings Thanks for your attention ! Any question? Prof. Jose Cabré = braking economic activity + Recession? Where will we end up? Spanish GDP forecast (2012) economy (130.000 mill. euro) - To cut public spending 1, 5% GDP: 4.400 mill.
- Internal devaluation 30% -25% private wage (eliminating two extra payments per year) + hours
- Cut minimum wage 20% (<600 euros).
- To fire 15.000 public workers (150 000 2015) Forecast and evolution spanish public deficit
(%GDP) (January 2011) Forecast and Public Spanish Debt (% GDP) (January 2011) SOURCE: EUROPEAN COMISSION European Commission forecast on Growth and Unemployment(November 2011) * Source: Eurostat * 2013: forecast Forecast and evolution Spanish Public Deficit Forecast and evolution Spanish Public Debt Public Spanish Incomes and Spends Bursting of the real estate bubble Public incomes fall:
Significant increase of the deficit budget balance Under 15% of Germany's total arms export are made
to Greece, its biggest market in Europe The new mantra: AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, AUSTERITY, Spanish Austerity Increase of the payroll tax (income tax) and VAT
Increase in university fees
Reduction of the salary of public employees Reduction of the number of public employees (massive layoffs)
Serious reduction of public investment
Increase of retirement age
Control of pensions
Reduction of public expenditure (Health, Education, ) – (2010 50.000mill € ) Portugal Austerity/Rescue Reduction of the number of public employees (massive layoffs)
Cutbacks in pensions
Increase of taxes for self-employed
Increase of payroll tax (income tax)
Increase of luxury goods tax
Attempt to increase contribution to Social Security in 7%, rising from 11 in 2013 to 18%
More privatization Italy austerity: decree "Salva Italia" VAT increase
Cutbacks in pensions
Increase in retirement age
Tax on real state owners
Ceiling of € 1,000 to pay in cash
Reduction of provinces' political offices
Increase of luxury goods tax Ireland austerity/Rescue Suppression of 24,750 public employees
Increase of the income tax and VAT
New tax on water
Increase of fees in education
Slight reduction in the minimum wage
Cutbacks in pensions
Increase of retirement age
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