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Crash, Euro crises and welfare futures. Outline: from 2008 to 2012. Why the crash in 2007-8? On mortgages, banks and public expenditure How the disease spreads Banks and states: the PIIGS Italy and Greece Spain, Ireland (and Portugal) States and bond markets The mess we are in.

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Presentation Transcript
outline from 2008 to 2012
Outline: from 2008 to 2012
  • Why the crash in 2007-8?
    • On mortgages, banks and public expenditure
  • How the disease spreads
    • Banks and states: the PIIGS
      • Italy and Greece
      • Spain, Ireland (and Portugal)
    • States and bond markets
  • The mess we are in
t he crash in 2008
The crash in 2008
  • 1990s – 2000s: growth of derivatives markets
    • Bonus-based promotions of mortgage loans & debt
  • US / UK property bubble bursts:
    • Mortgage defaults
    • Property prices collapse / negative equity
    • Bank balances inadequate (run on banks)
    • Governments step in to forestall bank collapse
  • Private debt becomes public debt.
  • Economies contract: unemployment rises (CEE)
the problem in spain ireland
The problem in Spain (Ireland)
  • Massive expansion of (& investment in) property 1990s and 2000s. Post-crash:
    • Abandoned development projects
    • Domestic banks undermined
  • Rising unemployment hits state revenues
    • Result: massive public sector deficits
    • Result: mass youth unemployment
the problem in greece italy
The problem in Greece (Italy)
  • Heritage of extensive government borrowing
    • Small Eurozone economy slips sub EconFin radar
  • Public expenditure used to sew together coalition parties (insider privileges & public pensions)
  • Problems with taxation: lost revenue, constant borrowing to shore up deficits.
    • Greek problems affect Cyprus
the issue of the euro
The issue of the Euro
  • How to cure debt:
    • Devalue currency (impossible under Euro)
    • Raise interest rate (same + higher unemployment)
    • Renegotiate repayments (the IMF & ECB solution + ‘firewall’ of ECB guarantees)
  • The risk of default: the message of the bond markets