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The world financial instability and the Euro zone crisis - Chapter 2 Jacques SAPIR CEMI-EHESS

The world financial instability and the Euro zone crisis - Chapter 2 Jacques SAPIR CEMI-EHESS. 2. The sovereign debt issue. 1. The sovereign debt general increase in the Euro zone has been a direct consequence of the crisis.

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The world financial instability and the Euro zone crisis - Chapter 2 Jacques SAPIR CEMI-EHESS

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  1. The world financial instability and the Euro zone crisis - Chapter 2Jacques SAPIRCEMI-EHESS

  2. 2.The sovereign debt issue

  3. 1. The sovereign debt general increase in the Euro zone has been a direct consequence of the crisis. • A debt level inferior before the crisis to what was the situation in the USA and Japan. • The specific US situation. • The Japanese problem. • A sharp reaction to the crisis. • A typical “asymmetrical shock” situation?

  4. 2. However economic divergence has played and important role. • The Euro zone has been since its creation a low-growth zone among industrialized countries. • Inflation has not been standardized despite the fact that monetary policy has been the same for every country. • The burden of unemployment (in static and in dynamic) is not the same for every country.

  5. 3. Specific rules have transformed the debt into a Ponzi scheme. • The Maastricht and Lisbon treaties rules concerning Central Banks, the ECB and the funding of the budget deficit. • Impact of interest rates hike on the budget deficit. • The Growth issue. • Is debt feeding debt?

  6. 4. The Greek case. • Was the huge increase of the debt to GDP ratio the result of the framing of data? • What are income sources of the Greek economy. • Rescue plans: n°1 and n°2. • What is the situation, now? • How could a default be avoided?

  7. Total amount to be funded till 2019 under the current deficit assumptions

  8. 5. Could the Euro zone adjust to the situation without breaking its back? • What is the actual situation? • Austerity plans and their cumulative effects. • Historical precedents. • Germany (Brünning) • GB (MacDonald) • The comparison with Russia (1993-1998). • The deflationary spiral. • Budget Cuts are inducing massive a recession. • The recession is inducing a contraction of Budget revenues. • Is there a solution?

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