wild wild west: unraveling the euro and usa crisis

[wild wild west] Unraveling the euro and USA Crises

Go, magat, Miraflor, miranda, Muangsombut, navarro, punongbayan, sunglao, Timbang, tolentino

REPORT

OUTLINE

[overview of the crisis]    

  [Synthesis]

[Country Reports]    

•  USA

•  PIIGS

•  Germany &

France

•  UK & Denmark

•  Smaller

Economies

•  Out of Zone

•  3a Euro STates

ov e rv i e w

Of the crisis

Overview

of the crisis

Overview

of the crisis

Size according to size of total government spending

as a % of GDP.

co u n t ry

r e p o r t s

Country Report : USA

Country Report : USA

Indicators - GDP

•  2011: 1.7% o Q3: 1.8% o Q4: 2.8%

• December 2011: 8.5%

Country Report : USA

Indicators - Unemp Rate

•  Annual inflation rate (2011): 3%

Country Report : USA

Indicators - Inflation

•  September 2011: Operation Twist o US Federal Reserve is trading some of its

shorter-term bonds in exchange for longer-term bonds (10-year bonds).

o Aims to increase demand for long-term bonds, drive prices up, therefore, driving down long-term interest rates to encourage borrowing.

Country Report : USA

Financial Crisis Update

Debt levels remain high…

Country Report : USA

Narrowing debt, gdp

Country Report : USA

Economic Growth

Country Report : USA

Consumption/gdp

Country Report : USA

Unemployment forecast

•  The economic growth looks better as it grew 2.8% from the 1.8% recorded in the previous quarter

•  The improvement largely came from businesses stockpiling goods they had produced, rather than selling them

•  Unemployment rate edged down to 8.6%, as improvements in the labor market became evident

Country Report : USA

Economic Trends

•  Consumer confidence snapped back more than forecast in November as Americans turned less pessimistic on the outlook for jobs and wages, one reason why spending has jumped at the start of the holiday season.

Country Report : USA

Economic Trends

Country Report : USA

Economic Trends

US stocks trim losses, but red on Greek woes.

1 year 5 days

Country Report : USA

Dow JONES AVERAGES

5 days 1 year

Country Report : USA

NASDAQ AVERAGES

•  Obama announced US needs to do more to tackle unfair foreign trade practices and rebuild American manufacturing.

•  Obama has set a target of doubling total U.S. exports between 2010 and 2015.

•  Tax record and the middle & low income households.

Country Report : USA

Elections 2012

[EURO SUB-REGIONS]

The Drivers

M  

The PIIGS

Staying Out

Smaller Eurozones

Out of the Zone

Triple A’s

Country

reports

The drivers

M   France + Germany

M  

The dRivers

Current status

GERMANY •  Debt-to-GDP: 83.2% •  Largest economy in Europe, fourth-largest in

the world (nominal GDP) in 2008 •  Had better debt and deficit status than most

Eurozone members. o German trade surpluses to GDP increased

M  

The dRivers

Current status

FRANCE •  Debt-to-GDP: 81.7% •  Second largest economy in Europe, fifth

largest in the world.

M  

The dRivers

During the Crisis

GERMANY •  Acted as a “voucher” that keeps economies

intact (e.g. €110 billion EU/IMF loan package over 3 years for Greece)

•  Estimated to have made more than €9 billion out of the crisis as investors flock to safer but near zero interest rate bunds.

M  

The dRivers

During the Crisis

FRANCE •  16 Nov 2011: France's bond yield spreads vs.

Germany had widened 450% since July. But on December the bond yield retreated.

•  13 Jan 2012: Standard & Poor’s downgraded France from AAA rating.

M  

The dRivers

Where they stand Now

GERMANY •  Merkel got 25 of 27 EU countries to sign

“Stability and Growth Pact”, which included agreements fiscal controls o  binding limits on budget deficits, sanctions on

breaching deficit, debt limits o  "essentially makes Keynesianism illegal” o may strangle growth

M  

The dRivers

Where they stand now

FRANCE •  In a weaker position due to lost AAA credit

rating from S&P. •  Sarkozy won’t ratify new accord until after

election, but opposition leader Francois Hollande pledged to renegotiate if he win. o Bad for Franco-German relations

M  

The dRivers

What they want...

GERMANY •  Proposed to impose a European

commissioner on Greece, with veto powers over the Greek budget. (failed) o  "Given the disappointing compliance so far,

Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time."

M  

The dRivers

What they want...

FRANCE •  Championed financial transactions tax

during the summit (e.g. unilaterally impose 0.1% within its borders starting August)

•  Financial transactions levy designed to stop currency speculation. Sarkozy expects to annually raise €1 billion to stem deficit.

M  

The dRivers

What they Don’t want...

GERMANY •  Rejected suggestions from IMF, Italy and

Spain that size of future bailout funds should be increased (€440 billion).

•  Believes that greater integration is needed first. Merkel may have exhausted Bundestag support after successive bailouts.

M  

The dRivers

What they Don’t want...

FRANCE •  Doesn’t want non-euro governments to be

given a bigger say in Eurozone. France initially asked to include only 17 countries.

•  Doubts the financial viability of non-euro states, such as Poland.

M  

The dRivers

Way FOrward

GERMANY •  Eurozone suffering from currency imbalance.

At one end is Germany’s export economy. •  Large trade surplus means it must either

increase savings or be a net exporter of capital in the future.

•  Must lend more money to other countries to allow them to buy German goods.

M  

The dRivers

Way Forward

FRANCE •  Financial Transactions Tax good way to go.

o Two-pronged strategy to address the roots of the debt crisis (CDS, speculation, etc.) while raising revenues to address deficits

•  Must muster political will to convince UK and the rest of the EU to pursue the FTT track.

M   M  

The “PIIGS”

  Portugal, Ireland, Italy,

Greece and Spain

M  

The P .I .I .G .S . Portugal

M  

The P .I .I .G .S . Ireland

M  

The P .I .I .G .S . Italy

M  

The P .I .I .G .S . Greece

M  

The P .I .I .G .S . Spain

M  

The P .I .I .G .S . GDP growth rate

M  

The P .I .I .G .S . Unemployment rate

M  

The P .I .I .G .S . Government Deficit

M  

Staying out

  UK + Denmark

M  

Staying out‒for good

Reasons for not Joining

•  Losing its sovereignty •  Result of the referendum

M  

Staying out‒for good

UK economy

Grew by 0.9% during 2011.

M  

Staying out‒for good

UK economy

Inflation fell to 4.2% during December

M  

Staying out‒for good

UK economy

•  Unemployment rose by 118,000 in the three months to November to 2.685 million, the highest level since summer 1994.

M  

Staying out‒for good

Denmark economy

•  Denmark's fiscal position remains among the strongest in the EU. Despite previously meeting the criteria to join the European Economic and Monetary Union (EMU)

•  The Danish krone remains pegged to the euro.

M  

Small e-zones

  Belgium, Estonia, Cyprus,

Malta, Slovakia and Slovenia

M  

Smaller eurozones

Estonia

•  Eurozone’s fastest-growing economy. •  Lowest Debt-to-GDP ratio, 6.7% •  Highest export growth across the eurozone •  Joined EU only in Jan 2011, and wants to be

among decision-makers. •  Parliament approved EU fiscal pact calling

for tighter budget rules and sanctions.

M  

Smaller eurozones

Belgium

•  High public sector debt; needs low borrowing costs.

•  Wants to avoid complex treaty change process, which will have to be approved by 9 parliamentary chambers.

M  

Smaller eurozones

Belgium

•  Unions protest austerity measures. Only 21% support the strikes.

M  

Smaller eurozones

Cyprus

•  Has EU's biggest public sector spending bill of 15.4%. Heavily exposed to Greek debt.

•  S&P downgraded to junk; Moody's and Fitch downgraded to just above junk.

•  High borrowing costs locked Cyprus out of international markets. Currently relying on €2.5 billion low-interest loan to meet this year’s finances.

M  

Smaller eurozones

Malta

•  Experienced positive growth of 2%, yet received rating downgrade from S&P.

•  Wants to avoid long treaty change process,

but will accept Merkel-Sarkozy plan if there's no alternative.

M  

Smaller eurozones

Slovenia

•  Badly hit by the global crisis due to its dependency on exports.

•  New government has been chosen (via snap election), so political aims unclear.

•  Government deems Fitch, Moody's, and S&P rating downgrades as "excessive".

M  

Smaller eurozones

Slovakia

•  Only member-state which refused to participate in initial rescue package for Greece.

•  Against Merkel-Sarkozy plan to stop smaller EU countries blocking permanent eurozone bailout fund decisions.

•  PM rejects increase of European Stability Mechanism (bailout fund)

M  

Out of the zone

Poland, Sweden, Latvia, Lithuania, Czech Republic, Hungary, Romania and Bulgaria

M  

Out of the zone

Elections 2012 •  Poland •  Sweden •  Latvia •  Lithuania •  Czech Republic •  Hungary •  Romania •  Bulgaria

M  

Triple a’s

Austria, Netherlands, Finland and Luxembourg

M  

Triple a’s

indicators

AUSTRIA FINLAND LUXEMBOURG NETHERLANDS

Population (Millions)

8.417 5.401 0.515 16.695

GDP per Capita (PPP)

$ 41,805 $ 36,723 $ 84,829 $ 42,330

Unemployment Rate

4.100 7.821 5.755 4.200

Inflation Rate 3.200 3.114 3.582 2.500

Net Debt 52.36% -59.748% 19.656% 30.641%

M  

Triple a’s

Crisis Developments

•  Finland demanded for collateral for its share in second bailout package

•  Austria and other states deemed this unfair •  Other eurozone countries can demand for

collateral but under strict conditions

•  Finland against plan to stop smaller EU countries from preventing bailout decisions

M  

Triple a’s

LUXEMBOURG & NETherlands

•  2 of the 6 founding members of the EU

•  Maintains AAA S&P credit rating o Long-term Outlook:

negative

M  

Triple a’s

LUXEMBOURG & NETherlands

•  S&P may lower rating in 2012/2013 o Luxembourg: GDP growth of 0.2% in 2012 • Economy’s dependence on large

financial sector; risk o Netherlands: If net borrowing

requirements consistently exceed 3% of GDP

M  

Triple a’s

Austria

•  Downgraded to AA+ last January 13 o Outlook: negative; possible further

downgrade in 2012/2013 • Weakening of Austrian banks’ balance

sheets may lead to recapitalization -Gov’t debt may exceed 80%

• Economic growth much weaker

M  

Triple a’s

Finland

•  Maintains an S&P credit rating of AAA o Negative outlook; at least 1-in-3 chance

of credit downgrade in 2012/2013 •  Sustained government deficits •  Sustained deviation in public finances

Synthesis

& conclusion

[wild wild west] Unraveling the euro and USA Crises

Go, magat, Miraflor, miranda, Muangsombut, navarro, punongbayan, sunglao, Timbang, tolentino