the world financial instability and the euro zone crisis chapter 3 jacques sapir cemi ehess n.
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The world financial instability and the Euro zone crisis - Chapter 3 Jacques SAPIR CEMI-EHESS. 3 The December 2011 crisis and its partial solutions. 1. A ra pid worsening of the Crisis since August 2011 and the quick increase of interest rates. The degradation of long-term rates.

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slide3
1. A rapid worsening of the Crisis since August 2011 and the quick increase of interest rates.
      • The degradation of long-term rates.
        • An indicator of general solvency market estimates.
        • The process of de-uniting the Eurozone.
      • The degradation of short-term rates.
        • Short-term worries.
        • The speculative dimension.
      • The “spreads”.
        • How are they computed.
        • What the study of historical movement is teaching us.
      • The destruction of the only real asset of the Euro zone: lower interest rates for all.
        • Were low rates have been a financial bubble?
slide11
Interest rates have climbed to unseen levels before dropping down following the ECB intervention.
      • Could this situation be sustained?
      • Is the ECB really “monetizing” the debt?
      • Interest rates on Sovereign and Corporate debts?
  • The spread of French rates to German ones is now on par to what has been the situation before the introduction of the Euro zone.
  • Even after the dropping down of interest rates, levels are still much too high for countries like Italy and Spain.
      • Italy: a problem with the accumulated debt.
      • Spain: Public finance out of control?
      • Insolvency or a simple liquidity crisis?
        • External solvency.
        • Internal solvency.
slide12
2. Bank on the brink: the stress-test issue and the liquidity crisis.
      • What a stress-test is.
        • Theoretical view: a “worst case simulation”.
        • The critical importance of inserting realistic assumptions.
      • The intra-European debt market.
        • Sovereign debt
        • Corporate debt.
      • The CDS on banks are very high and banking sectors all over Europe have seen their valuation coming down.
        • The development of a new market.
        • CDS at bay: Greece.
        • What would be a world without CDS?
      • The collapse of the intra-European debt market.
slide15
3. The collapse adverted or only postponed?
    • Why the risk of a collapse was real by early December 2011.
      • The quick rise of interest rates on Italy and Spain.
      • The collapse of the short term intra-bank liquidity market.
      • The evil synergy between the bank crisis and the sovereign debt crisis.
    • The political reaction.
      • The December 9th summit: no place for disagreements.
      • The European Central Bank and its brinkmanship.
slide16
Conclusion: Problems still unsolved.
    • The “budget federalism” so far concerns only the expenditure side of State budgets.
      • No real transfers.
      • Fiscal discipline and Growth.
      • Political worries.
    • The disciplinarian side of the December 9th agreement is subject to a lot of critics and of adjustments.
    • There is still no solution to the recessive effects of “austerity plans” and the EZ could well be on a deflationary path.