EUROPEAN DEBT CRISISTarun ChughDepartment AssistantHughey Center For Financial Services
History of the Euro zone        Maastricht Treaty       Amsterdam Treaty        European Central Bank   Euro Circulation
Countries in the Euro zoneGermany     FranceItaly       SpainPortugal    GreeceAustria     NetherlandsSlovakia    Slovenia...
Big & Nuisance Players of EUGreece, 1.9     Portugal, 1.4      Ireland, 1.3  Netherlands, 4.8                             ...
Conditions to be in the Euro zone Inflation in each country can only be 1.5% more  than the average of the 3 lowest natio...
Initially Growth was Encouraging
Yields dropped and the party was on…
Reduced the cost of debt for weaker nations
Lowest yield for Italy was 3% Current yield is7.28%
Stability of the Euro zone let weaker nationsLever up…
Which they happily did..
H a p p y E u r o p e a n s   !
Financial crisis and European debt crisis areinterlinked 2008-2009 financial crisis dealt a heavy blow to the  European e...
Goldman Sachs deals with Greece Greece did deals with investment bankers to hid  its debt with the use of fancy derivativ...
Euro zone GDP growth 2009
Europe Debt to GDP (2007)
Europe is highly leveraged…
Debt to GDP Ratio (2007)                             Above 75%                       Italy Greece Belgium                 ...
Debt to GDP Ratio (2010)                             Above 75%                   Belgium Italy Germany Greece             ...
Central                 Central ProblemProblem•Low Growth•High DebtLevels•HighUnemployment•Slow DecisionMaking
Size of the Problem                     Debt in trillions of Euro IrelandPortugal Greece  Spain                           ...
Banks hold a bit of Greek bonds
But a lot of Italian bonds
Size of the CDS market
Why don’t the Europeans inflate the debtaway ?
Austerity its not over rated
Greece needs a haircut and badly
And maybe Italy does too
Actions taken till today European Financial Stability Fund with resources  of €780 billion 50% haircut on Greek bonds wh...
Future scenarios
Dilbert’s take on Europe
Questions ?
References Washington post Reuters GMO World bank data New York Times Trading Economics
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European debt crisis

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simple explanation of the European Debt Crisis from an MBA student's perspective

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  • Total of portugal,italy,spain,greece,= .160+1.84+.641+0.329=2.97 trillion (2010)
  • European debt crisis

    1. 1. EUROPEAN DEBT CRISISTarun ChughDepartment AssistantHughey Center For Financial Services
    2. 2. History of the Euro zone Maastricht Treaty Amsterdam Treaty European Central Bank Euro Circulation
    3. 3. Countries in the Euro zoneGermany FranceItaly SpainPortugal GreeceAustria NetherlandsSlovakia SloveniaCyprus EstoniaMalta IrelandBelgium FinlandLuxemborg
    4. 4. Big & Nuisance Players of EUGreece, 1.9 Portugal, 1.4 Ireland, 1.3 Netherlands, 4.8 Germany , 20.2 Spain, 8.7 Italy, 12.7 France, 15.8 UK, 13.9
    5. 5. Conditions to be in the Euro zone Inflation in each country can only be 1.5% more than the average of the 3 lowest nations Gross debt to GDP ratio cannot exceed 60% Government deficit to GDP cannot exceed 3% The interest for the zone cannot exceed more than 2% points than the average of the lowest three nations
    6. 6. Initially Growth was Encouraging
    7. 7. Yields dropped and the party was on…
    8. 8. Reduced the cost of debt for weaker nations
    9. 9. Lowest yield for Italy was 3% Current yield is7.28%
    10. 10. Stability of the Euro zone let weaker nationsLever up…
    11. 11. Which they happily did..
    12. 12. H a p p y E u r o p e a n s !
    13. 13. Financial crisis and European debt crisis areinterlinked 2008-2009 financial crisis dealt a heavy blow to the European economy Leverage became a dirty word and it led to a crisis of confidence the world over“The ever-widening financial crisis hasshaken investors’ faith in the wholesystem. People no longer trustassurances that fancy financialinstruments will function the waythey’re supposed to” Paul Krugman 2008
    14. 14. Goldman Sachs deals with Greece Greece did deals with investment bankers to hid its debt with the use of fancy derivative deals Greece used these instruments in early 2000s to hid its debt to het entry in Euro zone The debt to GDP ratio reduced by 1.6% in 2001 Full disclosure in 2010 led to the first $ 140 billion dollars bailout plan (May,2010)
    15. 15. Euro zone GDP growth 2009
    16. 16. Europe Debt to GDP (2007)
    17. 17. Europe is highly leveraged…
    18. 18. Debt to GDP Ratio (2007) Above 75% Italy Greece Belgium 50-75% Austria France Portugal Germany Cyprus 25-50% Slovakia Spain Netherlands Finland 0-25% Estonia Luxembourg Slovenia Ireland
    19. 19. Debt to GDP Ratio (2010) Above 75% Belgium Italy Germany Greece France Ireland 50-75% Netherlands Spain Austria Cyprus 25-50% Slovenia Slovakia Finland 0-25% Luxemborg Estonia
    20. 20. Central Central ProblemProblem•Low Growth•High DebtLevels•HighUnemployment•Slow DecisionMaking
    21. 21. Size of the Problem Debt in trillions of Euro IrelandPortugal Greece Spain Debt in trillions of Euro France ItalyGermany 0 0.5 1 1.5 2 2.5
    22. 22. Banks hold a bit of Greek bonds
    23. 23. But a lot of Italian bonds
    24. 24. Size of the CDS market
    25. 25. Why don’t the Europeans inflate the debtaway ?
    26. 26. Austerity its not over rated
    27. 27. Greece needs a haircut and badly
    28. 28. And maybe Italy does too
    29. 29. Actions taken till today European Financial Stability Fund with resources of €780 billion 50% haircut on Greek bonds which is an orderly default 20-30% guarantee on bonds of the peripheral countries Calls for Eurobonds and closer fiscal union
    30. 30. Future scenarios
    31. 31. Dilbert’s take on Europe
    32. 32. Questions ?
    33. 33. References Washington post Reuters GMO World bank data New York Times Trading Economics
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