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A Suggestion for Improving the Current Euro Situation
 

A Suggestion for Improving the Current Euro Situation

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This was a presentation for my international econ class about using the early US fiscal + monetary union as guidance for the current EU euro crises.

This was a presentation for my international econ class about using the early US fiscal + monetary union as guidance for the current EU euro crises.

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    A Suggestion for Improving the Current Euro Situation A Suggestion for Improving the Current Euro Situation Presentation Transcript

    • Economics in the NewsLooking to the Past for a Better Future?Many Europeans seek inspiration from the USAwhile trying to save the Euro.Are their claims and comparisons justifiable? Kasey Navita Phifer (523482) International Economics - Dr. Thomasberger College of Applied Sciences, Berlin 5 January 2012
    • Outline  Current Euro-crises situation  Similarities between early USA and early EU  Differences “  Opinions/Discussion  Sources2 Phifer - www.knavita.com - 01.05.2012
    • Current Euro-crises situation  European Financial Stability Facility (EFSF) created, later European Stability Mechanism (ESM)  UK vetoed joining new treaty, increased taxes on financial transactions seen as unfair burden on London  Treaty to be drawn up and signed by end of January3 Phifer - www.knavita.com - 01.05.2012
    • Looking to the Past... Germany successfully saved its banks from difficult financial positions by handing out gov. backed securities which temporarily balanced out the losses allowing future profits to negate the current losses 1931-‟32 (partially with interest) 1948 (compensating for worthless 3rd Reich bonds) 1 July 1990 (saving GDR banks) 2009 (fees included) Some look to early years of USA for guidance on how to unify the EU4 Phifer - www.knavita.com - 01.05.2012
    • Similarities USA EU • States were very autonomous • States were very autonomous • Began with many different • Began with many different currencies currencies • Later unified into one common • Later unified into one common currency for all member states currency for all member states • States backed by Federal Reserve • States backed by ECB • Fed. Gov. assumed states„ war • EU gov. assumed the central banks debts, consolidating into new of all states schedule of repayments • Gov. spending appx. 2% of GDP • EU gov. spending is very little (most (now ca. 25%) states fudn their own programs) • Southern states didn„t want to „bail • Northern states (Germany, France) out“ the others (so the nation„s new don„t want to „bail out“ the others capital was placed on Virginia„s (and the ECB is located in Germany) borders to appease the state)5 Phifer - www.knavita.com - 01.05.2012
    • Differences USA EU • After currency unification, US • After currency unification, no „expanded“ its borders (taking land further expansion („stagnant“ & ressources from the Native economy without exploiting further Americans) resources) • Common language led to easy • Each state speaks a different unification and communication language (mostly) between states • US twice created central banks and • EU has only created one central then dismantled them (due to bank together (so far) popular dislike) ...which led to 80 years without a central bank • Capital and labor move(d) freely • Capital and labor move more between states freely now, but are hindered by language & cultural differences6 Phifer - www.knavita.com - 01.05.2012
    • My Opinion: more liquidity EU and USA are too different to be compared. In order to boost investor confidance, the EU needs to be more unified (at least with financial policy) and have larger foreign reserves at hand  Debt-to-GDP ratios: 87 % - France 67 % - Spain 121 % - Italy  Yet all are being charged rates from IMF above what these similar countries pay: 83 % - Germany 100 % - USA 233 % - Japan ECB reserves ca. €526 billion total, of which €43b direct Versus Japan‟s foreign currency reserves of €1 trillion+7 Phifer - www.knavita.com - 01.05.2012
    • Opinions/Discussion 1. Is a fiscal unification all that„s needed? 2. Will stricter rules be enough (since treaties and agreements have been historically broken & rewritten) 3. Is the solvency problem purely based upon debt-to-GDP?8 Phifer - www.knavita.com - 01.05.2012
    • Sources  “One Nation Overdrawn”. The Economist. 17 Dec 2011.  “Hasselfeldt will Mechanismus zum erzsungenen Ausscheiden aus Euro”. Frankfurter Allgemeine Zeitung. 30 Dec 2011.  “Das Finanzsystem retten, nicht Schulden sozialisieren.” Frankfurter Allgemeine Zeitung. 4 Dec 2011.  http://www.foreignpolicy.com/articles/2011/12/15/it_ s_the_politics_stupid  http://www.bloomberg.com/news/2011-12-09/euro- states-to-shift-267-billion-to-imf-as-focus-shifts-to-deficit- deal.html  http://www.ecb.int/stats/external/reserves/html/asse ts_2011-11.en.html9 Phifer - www.knavita.com - 01.05.2012