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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.

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Presentation Transcript

What caused the global recession of 08
What caused the global recession of 08?

And thus caused the European debt crisis


Basic economics the bank run
Basic Economics - The Bank Run

  • “It’s a Wonderful Life”


America sneezes and the world gets pneumonia
America Sneezes and the World gets Pneumonia!

  • The Housing bubble bursts 2006


The bubble burst
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
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
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
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

  • France

    BNP Paribas US $5.8 bn.



Debt in the euro zone 17 of 27states1
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
Greece as a Case Study

The darkening clouds of civil disobedience and anarchy in Greece


European exposure
European Exposure

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



Which path to recovery a usterity taxes spending cuts or growth tax and regulation cuts
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
US Response – Ambassador Smith (CU Grad) and Secretary of State Clinton

The Fed v. The European Central Bank



What can they do
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


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