The eurozone has established three key measures to address its debt problems and market concerns:
1) A €110 billion package for Greece to help meet immediate debt obligations and deficit reduction targets over three years.
2) The European Financial Stability Mechanism provides €60 billion, backed by the EU budget, to support eurozone countries.
3) The European Financial Stability Facility established by eurozone members provides up to €750 billion in lending to countries in difficulty, guaranteed by member states based on capital shares. However, long-term concerns remain about countries' ability to meet deficit targets and the risk of debt contagion across the eurozone.
This document summarizes a breakfast teach-in on the Eurozone sovereign debt crisis and its potential impacts on UK pension funds. It provides background on the crisis and analyzes two sample pension fund allocations (A and B) under three potential Eurozone scenarios: a Greek default, breakup of the Eurozone periphery, and a full breakup of the Euro currency. Allocation B is found to better manage risks through a reduced equity allocation and increased allocation to less volatile assets.
The document summarizes the recommendations of six Shadow Financial Regulatory Committees on addressing the Eurozone crisis. It recommends a four-stage plan: 1) restructuring Greek debt to a sustainable level while protecting other countries, 2) ensuring banks are adequately capitalized, 3) providing sufficient funding from coordinated international sources to eliminate sovereign debt uncertainty, and 4) addressing long-term competitiveness issues between northern and southern Eurozone countries. It also calls for fundamental changes to international bank regulation standards.
Whether the ongoing, acute Euro crisis results in a stabilized Euro, a contracted Euro or total disintegration, banking and financial services (BFS) companies must prepare their operational and IT systems to accommodate any resulting changes and limit revenue losses. We offer a remediation plan to prepare for these potentially disruptive changes that could affect systems and processes such as risk management, legal and compliance, cash and liquidity management, reporting, settlement and clearing, post-trade services, channel access, trade execution and management and many more.
This document proposes reforms to improve governance and stability in the Eurozone. It recommends: (1) keeping fiscal responsibilities and control together to avoid moral hazard, either by transferring control to the EU or an intergovernmental agreement; (2) using the European Stability Mechanism as a vehicle for crisis prevention and monitoring fiscal rules; (3) expanding the ESM's role to include monitoring debt sustainability and coordinating restructuring when needed.
POSITION PAPER: Euro Zone Crisis. Diagnosis and Likely Solutions (ESADEgeo)ESADE
Author: Fernando Ballabriga
ESADEgeo - February 2014
Southern euro countries are in a situation of vulnerability due to three factors: their high debt levels, their eroded competitiveness and their difficulties to restart growth. Together, these factors generate a vicious circle which is difficult to exit and which can even degenerate into a self-fulfilling economic downward spiral. This policy brief provides a short guiding tour to the euro zone crisis. It looks at the current situation, the full context conditioning the solutions to the situation, how we got here, and the possible way out. The latter section outlines a set of minimum steps required to make the euro sustainable.
The document discusses the role of the European Union in response to the eurozone crisis. It outlines proposals for moving towards a real European economic and fiscal union, including establishing basic principles of economic governance and prioritizing specific actions. The goals would be to increase competitiveness, stimulate employment, ensure sustainable public finances, and increase financial stability. Additionally, the "six-pack" reforms are mentioned as a way to strengthen economic governance and improve fiscal sustainability in the European Union.
This document summarizes and analyzes a policy paper that proposes a two-step market-based approach to debt reduction in the eurozone without default.
Step 1 involves the EFSF exchanging existing Greek, Irish, and Portuguese government debt for EFSF bonds at market prices over 90 days. Step 2 assesses debt sustainability and either writes down debt to market levels if sufficient, or agrees to lower interest rates with GDP warrants. The goal is to restore private market access without seniority over remaining private claims. The ECB would stop bond market interventions, and the IMF could provide bridge financing until fiscal adjustments are complete.
The low interest rate environment – Causes, effects and a way outI W
The document discusses the causes and effects of the long period of low interest rates in Europe following the global financial crisis and Euro debt crisis. It notes that while the ECB's expansive monetary policy helped reduce tensions, the low rate environment poses increasing risks. Savers are disadvantaged by low yields, while debtors benefit. There are also financial stability risks as investors search for higher yields. The document argues that economic conditions have improved, making an interest rate turnaround possible in mid-2015, but the ECB should implement any rate increases gradually to allow markets to adapt.
This document summarizes a breakfast teach-in on the Eurozone sovereign debt crisis and its potential impacts on UK pension funds. It provides background on the crisis and analyzes two sample pension fund allocations (A and B) under three potential Eurozone scenarios: a Greek default, breakup of the Eurozone periphery, and a full breakup of the Euro currency. Allocation B is found to better manage risks through a reduced equity allocation and increased allocation to less volatile assets.
The document summarizes the recommendations of six Shadow Financial Regulatory Committees on addressing the Eurozone crisis. It recommends a four-stage plan: 1) restructuring Greek debt to a sustainable level while protecting other countries, 2) ensuring banks are adequately capitalized, 3) providing sufficient funding from coordinated international sources to eliminate sovereign debt uncertainty, and 4) addressing long-term competitiveness issues between northern and southern Eurozone countries. It also calls for fundamental changes to international bank regulation standards.
Whether the ongoing, acute Euro crisis results in a stabilized Euro, a contracted Euro or total disintegration, banking and financial services (BFS) companies must prepare their operational and IT systems to accommodate any resulting changes and limit revenue losses. We offer a remediation plan to prepare for these potentially disruptive changes that could affect systems and processes such as risk management, legal and compliance, cash and liquidity management, reporting, settlement and clearing, post-trade services, channel access, trade execution and management and many more.
This document proposes reforms to improve governance and stability in the Eurozone. It recommends: (1) keeping fiscal responsibilities and control together to avoid moral hazard, either by transferring control to the EU or an intergovernmental agreement; (2) using the European Stability Mechanism as a vehicle for crisis prevention and monitoring fiscal rules; (3) expanding the ESM's role to include monitoring debt sustainability and coordinating restructuring when needed.
POSITION PAPER: Euro Zone Crisis. Diagnosis and Likely Solutions (ESADEgeo)ESADE
Author: Fernando Ballabriga
ESADEgeo - February 2014
Southern euro countries are in a situation of vulnerability due to three factors: their high debt levels, their eroded competitiveness and their difficulties to restart growth. Together, these factors generate a vicious circle which is difficult to exit and which can even degenerate into a self-fulfilling economic downward spiral. This policy brief provides a short guiding tour to the euro zone crisis. It looks at the current situation, the full context conditioning the solutions to the situation, how we got here, and the possible way out. The latter section outlines a set of minimum steps required to make the euro sustainable.
The document discusses the role of the European Union in response to the eurozone crisis. It outlines proposals for moving towards a real European economic and fiscal union, including establishing basic principles of economic governance and prioritizing specific actions. The goals would be to increase competitiveness, stimulate employment, ensure sustainable public finances, and increase financial stability. Additionally, the "six-pack" reforms are mentioned as a way to strengthen economic governance and improve fiscal sustainability in the European Union.
This document summarizes and analyzes a policy paper that proposes a two-step market-based approach to debt reduction in the eurozone without default.
Step 1 involves the EFSF exchanging existing Greek, Irish, and Portuguese government debt for EFSF bonds at market prices over 90 days. Step 2 assesses debt sustainability and either writes down debt to market levels if sufficient, or agrees to lower interest rates with GDP warrants. The goal is to restore private market access without seniority over remaining private claims. The ECB would stop bond market interventions, and the IMF could provide bridge financing until fiscal adjustments are complete.
The low interest rate environment – Causes, effects and a way outI W
The document discusses the causes and effects of the long period of low interest rates in Europe following the global financial crisis and Euro debt crisis. It notes that while the ECB's expansive monetary policy helped reduce tensions, the low rate environment poses increasing risks. Savers are disadvantaged by low yields, while debtors benefit. There are also financial stability risks as investors search for higher yields. The document argues that economic conditions have improved, making an interest rate turnaround possible in mid-2015, but the ECB should implement any rate increases gradually to allow markets to adapt.
The document provides a summary of movements in various financial markets and commodities over the past quarter. It notes that the USD/THB remained in a sideways trend influenced by EUR and gold movements. The EUR/USD traded in a narrow range of 1.3000-1.3400 with focus on Spain. The USDJPY strengthened from 84 to 81 after the BoJ signaled no further easing but the market expects more bond purchases. THB interest rate swaps rose in Q1 on improved sentiment in Europe and comments from Thailand's central bank. NYMEX crude oil remained in an uptrend channel between $100-110. Coal prices continued to drop due to oversupply of the cheaper substitute,
The document provides a summary of movements in various financial markets and commodities over the past quarter. It notes that the USD/THB remained in a sideways channel tracking EUR and gold. The EUR/USD was rangebound between 1.3000-1.3400 with focus on Spain. The USDJPY strengthened from 84 to 81 after the BoJ signaled no further easing but the market expects more bond purchases. The THB interest rate swap rose in Q1 on improved sentiment in Europe. NYMEX crude oil remained in an uptrend channel between $100-110. Coal prices continued to drop due to oversupply of the cheaper substitute, natural gas. Rubber rebounded in Q1 but
KBank Capital Market perspectives May 18 markets wrap up - positioning for ...KBank Fx Dealing Room
Global markets are experiencing renewed volatility due to concerns about the future of the eurozone and slowing economic growth. Investors have sold risky assets like stocks and bought safe-haven assets such as the U.S. dollar, Japanese yen, U.S. treasuries and German bunds. The U.S. dollar has strengthened about 8% against other major currencies over the past year. Asian currencies have also weakened against the dollar, with the Thai baht declining about 2%.
1) A parliamentary election in Greece failed to form a new government, increasing the risk of Greece defaulting on its debt obligations or leaving the eurozone.
2) If Greece stops implementing austerity measures required for its bailouts, it will have no choice but to default, as it will have no incoming or outgoing funds. This will be a showdown between Greece's new leader and European creditors.
3) During the period of uncertainty until the next election, volatility in currency markets like the USD/THB will likely rise. However, the eurozone will ultimately take steps to keep Greece in the eurozone and inject more liquidity, reducing volatility once a solution is reached.
The Bank of Thailand held its policy rate unchanged at 3.50% due to the impacts of flooding in Thailand and global economic uncertainties. While inflation remains a concern, reconstruction efforts are expected to boost domestic demand and the flooding will negatively impact production capabilities and consumer spending. One MPC member voted for a rate cut but the committee decided to keep the rate on hold until at least the end of 2012 given weak global economic growth prospects.
- The Federal Reserve decided to keep the target range for the Federal Funds rate at 0-0.25%, as it has since December 2008, and expects to maintain this accommodative stance through late 2014.
- While the economy has been expanding moderately and unemployment has declined, the Fed judges that conditions still warrant exceptionally low interest rates.
- Inflation has picked up due to higher oil and gas prices but core inflation remains stable, and the Fed expects inflation to remain at or below its target in the medium term.
- The Fed will continue its program to extend the average maturity of its securities holdings and is prepared to adjust the size and composition of holdings as needed.
1) Portugal's debt problems stem from rigid product and labor market regulations that have led to declining productivity and competitiveness.
2) While political risks are lower than other troubled European countries, more time is needed to restore Portugal's economy as significant reforms have been implemented.
3) The IMF assesses that existing financial assistance for Portugal is adequate, but risks remain and additional funds from Europe may be needed, though funds are available.
The European debt crisis began as debt levels rose in countries like Greece, Ireland, Italy, Portugal and Spain. This called into question their ability to repay debts and weakened the collateral backing loans from the European Central Bank. To avoid default, the EU and IMF provided bailouts but with austerity measures that threaten economic recovery. The crisis could spread globally as budget cuts reduce demand for the euro and drive up prices of U.S. exports. The decade following 2008 may be defined by high public debt levels slowing growth for years.
It’s good to understand Europe’s debt crisis and why it’s affecting
U.S. markets. Here’s an overview of how the European Union
operates, why the euro is in danger, and what the crisis could mean
to American investors.
It’s good to understand Europe’s debt crisis and why it’s affecting
U.S. markets. Here’s an overview of how the European Union
operates, why the euro is in danger, and what the crisis could mean
to American investors.
It's good to understand Europe's debt crisis and why it's affecting U.S. markets. Here's an overview of how the European Union operates, why the euro is in danger, and what the crisis could mean to American investors.
It’s good to understand Europe’s debt crisis and why it’s affecting
U.S. markets. Here’s an overview of how the European Union
operates, why the euro is in danger, and what the crisis could mean
to American investors.
The European debt crisis began as debt levels rose in countries like Greece, Ireland, Italy, Portugal and Spain. This called into question their ability to repay loans and weakened the collateral backing loans from the European Central Bank. To avoid default, the EU and IMF have bailed out some countries but imposed strict austerity measures, cutting spending and jobs. However, austerity threatens economic recovery and a "double dip" recession. The crisis could spread to the US through reduced demand for US exports and a weaker euro. The high debt levels may cast a long-term shadow on economic growth across Europe and globally.
The European debt crisis began as debt levels rose in countries like Greece, Ireland, Italy, Portugal and Spain. This called into question their ability to repay loans. To help struggling countries avoid default, the EU and IMF provided bailouts but with austerity measures requiring budget cuts. However, austerity is slowing economic growth and recovery. If Europe cuts spending further, it could reduce demand for the euro and negatively impact the U.S. economy through lower exports. The debt crisis may prolong the economic downturn since high debt levels will likely cast a shadow on growth for years.
It’s good to understand Europe’s debt crisis and why it’s affecting
U.S. markets. Here’s an overview of how the European Union
operates, why the euro is in danger, and what the crisis could mean
to American investors.
The Eurozone Takes A Final Step Toward a Banking UnionQNB Group
The Eurozone took steps to create a banking union by delegating bank supervision responsibilities to the European Central Bank starting in 2015 and establishing a unified bank resolution system. This aims to reduce the risk of another financial crisis and break the link between banking crises and rising sovereign debt levels. A Eurozone-wide regulatory environment and centralized bank oversight will help level the playing field for banks and prevent national political interference. The agreement also establishes a 55 billion euro bank resolution fund over 8 years to help intervene in struggling banks. Overall, the banking union is an important step towards strengthening the credibility and stability of the Euro currency.
1) The document discusses the clash between short-term and long-term solutions to the euro area crisis. While urgent action is needed to reduce borrowing costs in Italy and Spain, without long-term reforms like fiscal and banking unions, Germany's willingness to provide funds may decline and the risk of a euro breakup will rise.
2) The euro area crisis stems from economic divergence pre-euro and an institutional deficit without a common fiscal policy. Crisis countries benefited from low rates but did not reform, while northern Europe performed better. The ECB cannot directly intervene due to treaty limits.
3) Deeper integration like banking stress tests and allowing the ECB to directly buy sovereign debt are urgently needed to
1) Prior to the crisis, EU financial integration increased, especially in interbank markets. However, retail banking remains fragmented along national lines. The crisis reversed integration in interbank markets, increasing financial fragmentation.
2) The document proposes three reforms: 1) thorough bank asset reviews and recapitalization from private sources, 2) restructuring non-viable banks through cross-border mergers, 3) developing corporate bond and equity markets to absorb shocks and reduce reliance on banks.
3) Timing is key - banking sector problems must be addressed first to support the economy, but decisions could shape future stability if not accompanied by cross-border integration and capital market reforms.
Eurozone Crisis : A case study on GreeceAniket Pant
Our group was required to do a presentation for Financial Management on the Euro Zone Crisis. We took the example of Greece and did the study. Here are our slides.
The EMU debt crisis occurred due to lenient criteria for countries joining the eurozone and a lack of fiscal policy coordination once in the union. When the global financial crisis hit, weaknesses in some eurozone countries' fiscal positions were exposed. As governments bailed out failing banks, investors began demanding higher risk premiums from weaker countries like Greece, exacerbating their debt problems. While stricter admission standards and sanctions for breaking fiscal rules may have prevented this, it is now nearly impossible for a country to exit the eurozone without causing further economic and political crises. Reforms are needed to stabilize the currency union.
The document provides a summary of movements in various financial markets and commodities over the past quarter. It notes that the USD/THB remained in a sideways trend influenced by EUR and gold movements. The EUR/USD traded in a narrow range of 1.3000-1.3400 with focus on Spain. The USDJPY strengthened from 84 to 81 after the BoJ signaled no further easing but the market expects more bond purchases. THB interest rate swaps rose in Q1 on improved sentiment in Europe and comments from Thailand's central bank. NYMEX crude oil remained in an uptrend channel between $100-110. Coal prices continued to drop due to oversupply of the cheaper substitute,
The document provides a summary of movements in various financial markets and commodities over the past quarter. It notes that the USD/THB remained in a sideways channel tracking EUR and gold. The EUR/USD was rangebound between 1.3000-1.3400 with focus on Spain. The USDJPY strengthened from 84 to 81 after the BoJ signaled no further easing but the market expects more bond purchases. The THB interest rate swap rose in Q1 on improved sentiment in Europe. NYMEX crude oil remained in an uptrend channel between $100-110. Coal prices continued to drop due to oversupply of the cheaper substitute, natural gas. Rubber rebounded in Q1 but
KBank Capital Market perspectives May 18 markets wrap up - positioning for ...KBank Fx Dealing Room
Global markets are experiencing renewed volatility due to concerns about the future of the eurozone and slowing economic growth. Investors have sold risky assets like stocks and bought safe-haven assets such as the U.S. dollar, Japanese yen, U.S. treasuries and German bunds. The U.S. dollar has strengthened about 8% against other major currencies over the past year. Asian currencies have also weakened against the dollar, with the Thai baht declining about 2%.
1) A parliamentary election in Greece failed to form a new government, increasing the risk of Greece defaulting on its debt obligations or leaving the eurozone.
2) If Greece stops implementing austerity measures required for its bailouts, it will have no choice but to default, as it will have no incoming or outgoing funds. This will be a showdown between Greece's new leader and European creditors.
3) During the period of uncertainty until the next election, volatility in currency markets like the USD/THB will likely rise. However, the eurozone will ultimately take steps to keep Greece in the eurozone and inject more liquidity, reducing volatility once a solution is reached.
The Bank of Thailand held its policy rate unchanged at 3.50% due to the impacts of flooding in Thailand and global economic uncertainties. While inflation remains a concern, reconstruction efforts are expected to boost domestic demand and the flooding will negatively impact production capabilities and consumer spending. One MPC member voted for a rate cut but the committee decided to keep the rate on hold until at least the end of 2012 given weak global economic growth prospects.
- The Federal Reserve decided to keep the target range for the Federal Funds rate at 0-0.25%, as it has since December 2008, and expects to maintain this accommodative stance through late 2014.
- While the economy has been expanding moderately and unemployment has declined, the Fed judges that conditions still warrant exceptionally low interest rates.
- Inflation has picked up due to higher oil and gas prices but core inflation remains stable, and the Fed expects inflation to remain at or below its target in the medium term.
- The Fed will continue its program to extend the average maturity of its securities holdings and is prepared to adjust the size and composition of holdings as needed.
1) Portugal's debt problems stem from rigid product and labor market regulations that have led to declining productivity and competitiveness.
2) While political risks are lower than other troubled European countries, more time is needed to restore Portugal's economy as significant reforms have been implemented.
3) The IMF assesses that existing financial assistance for Portugal is adequate, but risks remain and additional funds from Europe may be needed, though funds are available.
The European debt crisis began as debt levels rose in countries like Greece, Ireland, Italy, Portugal and Spain. This called into question their ability to repay debts and weakened the collateral backing loans from the European Central Bank. To avoid default, the EU and IMF provided bailouts but with austerity measures that threaten economic recovery. The crisis could spread globally as budget cuts reduce demand for the euro and drive up prices of U.S. exports. The decade following 2008 may be defined by high public debt levels slowing growth for years.
It’s good to understand Europe’s debt crisis and why it’s affecting
U.S. markets. Here’s an overview of how the European Union
operates, why the euro is in danger, and what the crisis could mean
to American investors.
It’s good to understand Europe’s debt crisis and why it’s affecting
U.S. markets. Here’s an overview of how the European Union
operates, why the euro is in danger, and what the crisis could mean
to American investors.
It's good to understand Europe's debt crisis and why it's affecting U.S. markets. Here's an overview of how the European Union operates, why the euro is in danger, and what the crisis could mean to American investors.
It’s good to understand Europe’s debt crisis and why it’s affecting
U.S. markets. Here’s an overview of how the European Union
operates, why the euro is in danger, and what the crisis could mean
to American investors.
The European debt crisis began as debt levels rose in countries like Greece, Ireland, Italy, Portugal and Spain. This called into question their ability to repay loans and weakened the collateral backing loans from the European Central Bank. To avoid default, the EU and IMF have bailed out some countries but imposed strict austerity measures, cutting spending and jobs. However, austerity threatens economic recovery and a "double dip" recession. The crisis could spread to the US through reduced demand for US exports and a weaker euro. The high debt levels may cast a long-term shadow on economic growth across Europe and globally.
The European debt crisis began as debt levels rose in countries like Greece, Ireland, Italy, Portugal and Spain. This called into question their ability to repay loans. To help struggling countries avoid default, the EU and IMF provided bailouts but with austerity measures requiring budget cuts. However, austerity is slowing economic growth and recovery. If Europe cuts spending further, it could reduce demand for the euro and negatively impact the U.S. economy through lower exports. The debt crisis may prolong the economic downturn since high debt levels will likely cast a shadow on growth for years.
It’s good to understand Europe’s debt crisis and why it’s affecting
U.S. markets. Here’s an overview of how the European Union
operates, why the euro is in danger, and what the crisis could mean
to American investors.
The Eurozone Takes A Final Step Toward a Banking UnionQNB Group
The Eurozone took steps to create a banking union by delegating bank supervision responsibilities to the European Central Bank starting in 2015 and establishing a unified bank resolution system. This aims to reduce the risk of another financial crisis and break the link between banking crises and rising sovereign debt levels. A Eurozone-wide regulatory environment and centralized bank oversight will help level the playing field for banks and prevent national political interference. The agreement also establishes a 55 billion euro bank resolution fund over 8 years to help intervene in struggling banks. Overall, the banking union is an important step towards strengthening the credibility and stability of the Euro currency.
1) The document discusses the clash between short-term and long-term solutions to the euro area crisis. While urgent action is needed to reduce borrowing costs in Italy and Spain, without long-term reforms like fiscal and banking unions, Germany's willingness to provide funds may decline and the risk of a euro breakup will rise.
2) The euro area crisis stems from economic divergence pre-euro and an institutional deficit without a common fiscal policy. Crisis countries benefited from low rates but did not reform, while northern Europe performed better. The ECB cannot directly intervene due to treaty limits.
3) Deeper integration like banking stress tests and allowing the ECB to directly buy sovereign debt are urgently needed to
1) Prior to the crisis, EU financial integration increased, especially in interbank markets. However, retail banking remains fragmented along national lines. The crisis reversed integration in interbank markets, increasing financial fragmentation.
2) The document proposes three reforms: 1) thorough bank asset reviews and recapitalization from private sources, 2) restructuring non-viable banks through cross-border mergers, 3) developing corporate bond and equity markets to absorb shocks and reduce reliance on banks.
3) Timing is key - banking sector problems must be addressed first to support the economy, but decisions could shape future stability if not accompanied by cross-border integration and capital market reforms.
Eurozone Crisis : A case study on GreeceAniket Pant
Our group was required to do a presentation for Financial Management on the Euro Zone Crisis. We took the example of Greece and did the study. Here are our slides.
The EMU debt crisis occurred due to lenient criteria for countries joining the eurozone and a lack of fiscal policy coordination once in the union. When the global financial crisis hit, weaknesses in some eurozone countries' fiscal positions were exposed. As governments bailed out failing banks, investors began demanding higher risk premiums from weaker countries like Greece, exacerbating their debt problems. While stricter admission standards and sanctions for breaking fiscal rules may have prevented this, it is now nearly impossible for a country to exit the eurozone without causing further economic and political crises. Reforms are needed to stabilize the currency union.
Euro summit kicking the can down the road once more-Markets Beyond
The Eurozone leaders reached an agreement to address Greece's debt crisis with a 50% nominal write-down of Greek debt held by private creditors, preferential refinancing of the remaining debt, and closer supervision of Greece's adherence to reforms. However, the agreement lacks many important details and only kicks the can down the road by failing to adequately address the underlying issues preventing Greece's economic growth. While providing short-term relief, the measures will not be enough to solve the region's sovereign debt problems in the long run. The agreement benefits China the most as a large holder of European debt.
The document provides background on the creation of the euro zone and the euro currency. It summarizes the factors that led to convergence initially but then divergence during the global financial crisis, exposing weaknesses in some euro zone economies. The crisis is described as stemming from high sovereign debt, fiscal deficits, and structural economic problems. Rescue efforts like the EFSF and ESM were created but have so far failed to fully reassure markets. Specific issues facing Ireland, Portugal, Spain, Italy, and Greece are also outlined.
Breaking the common fate of banks and governments by Daniel Gros and Cinzia A...Círculo de Empresarios
The document discusses the eurozone debt crisis and proposals for addressing it. It argues that while policymakers have focused on fiscal discipline, the crisis has deeper roots in inconsistencies in the eurozone's financial market regulation. The fiscal compact will not solve the crisis on its own because it fails to address the tight linkage between governments and banks, which is at the core of their common fate. Breaking this linkage is key to overcoming the crisis.
The document summarizes the slow but ongoing progress towards banking and fiscal union in the EU. Key points:
- EU finance ministers agreed to give the ECB oversight of large banks, but delayed fiscal union decisions until June 2013.
- The ECB will directly supervise over 200 large banks from 2014, leaving oversight of smaller banks to nations.
- A banking union aims to boost stability but was scaled back and implementation was pushed to 2014, leaving gaps.
- Fiscal and banking reforms need to go together with budget coordination to support financial stability long-term.
The document provides an overview of the Eurozone crisis, including important dates, statistics on the crisis' impact, details on Greece's debt crisis, the theory behind the Eurozone, and factors that contributed to the crisis. It discusses how Greece did not meet the criteria to join the Eurozone, its growing debt levels, credit downgrades, austerity measures, and the €110 billion bailout package provided. The structure of the Eurozone is identified as a cause due to issues like excessive borrowing, conflicting responsibilities for bank bailouts, and differences in macroeconomic policies across countries.
The public debt crisis is not limited to Greece or to the Euro area. In fact, several developed economies face rapidly growing debt-to-GDP ratios, which raise doubts about their long-term solvency. Thus, suggesting that the Eurozone is undergoing a currency crisis or is in danger of disintegration is not the right diagnosis (or at least premature). However, if prudent fiscal policies, fiscal discipline and far-reaching structural reforms are not undertaken soon, both the EU and EMU may face serious internal tensions and obstacles to future economic growth.
Authored by: Marek Dąbrowski
Published in 2010
The document summarizes the ongoing eurozone debt crisis, its triggers, and implications for US corporations. It began in 2010 when Greece's budget deficit was revealed to be much larger than estimated, exceeding the EU limit of 3% of GDP. Since then, sovereign debt issues have spread to other eurozone nations as markets question their ability to repay debts. Greece, Portugal, and Ireland have received bailouts from the ECB, EC, and IMF. While reform efforts are increasing, significant risks remain for US companies operating in Europe. The document outlines four possible future scenarios for the eurozone to help guide corporate contingency planning.
Similar to K bank fx & rates strategies an update of eurozone (20)
- Thai economic indicators showed broad-based improvement in January from the impacts of flooding in 2011, but growth remains below pre-flood levels. Private consumption and investments increased.
- Manufacturing production continued rising as supply chain issues ease, though export-dependent sectors saw slower growth. Inflation declined further.
- The document discusses risks from higher oil prices and the ongoing European debt crisis, as well as positive factors like the risky asset rally and additional European funding measures.
Thailand has been placed on FATF's watch list due to a lack of progress in fighting money laundering and terrorism financing. FATF noted that Thailand has not fully implemented its action plan to address deficiencies, including adequately criminalizing terrorist financing and strengthening anti-money laundering supervision. Being placed on the watch list means fund transfers involving Thailand will face higher scrutiny and could lead to economic sanctions if issues are not addressed. As FATF members account for 83% of the global economy, sanctions would significantly impact Thailand. Thai authorities must now comply with FATF's recommendations to avoid further consequences.
§ Thai GDP dropped 9.0% year-over-year in the fourth quarter of 2011 due to declines in domestic and external demand from severe flooding, much less than forecasts.
§ The floods resulted in decreases in private consumption, government spending, investment and exports while imports also dropped.
§ For 2011, Thai GDP growth was only 0.1%, far below previous forecasts, due to the flooding impact.
§ NESDB expects Thai GDP growth to recover to 5.5-6.5% in 2012 as investment increases, though exports growth was forecast lower, and inflation is projected at 3.5-4.0%.
The document provides a market movement update for February 2012, summarizing trends in currency exchange rates and commodity prices over various time periods. It notes that the USD/THB spot rate has fallen over 22% since 2007 but only 7% since 2011. Other currency pairs and commodity prices such as oil, gold, and copper are also discussed. The document concludes by highlighting opportunities for cheap baht funding through currency swaps and recommending options hedging strategies.
The document provides a summary and analysis of economic conditions in Thailand and other regions. It discusses:
1) Continued concerns about the eurozone debt crisis fueling demand for safe-haven currencies like the US dollar and depressing risk assets.
2) While US money supply growth looks better than the EU or Japan, high unemployment will likely lead the Fed to resume quantitative easing in mid-2012.
3) Local authorities in Thailand face challenges from losses at the Fiscal Debt Fund and risks of bond yield curve steepening given planned large bond issuances.
4) The analysis predicts the Bank of Thailand will cut its policy rate again in January and forecasts Thailand's economy could experience a V-shaped
The document provides a summary and analysis of economic conditions in Thailand and other regions. It discusses:
1) Continued concerns about the eurozone debt crisis fueling demand for safe-haven currencies like the US dollar and depressing risk assets.
2) While US money supply growth looks better than the EU or Japan, high unemployment will likely lead the Fed to resume quantitative easing in mid-2012.
3) Local authorities in Thailand face challenges from losses at the Fiscal Debt Fund and risks of bond yield curve steepening given planned large bond issuances.
4) The analysis predicts the Bank of Thailand will cut its policy rate again in January and forecasts Thailand's economy could experience a V-shaped
This document provides an economic update on Thailand with data from November and December 2011. It discusses declines in the SET index, farm income, manufacturing production, private consumption, investment, exports and imports due to the European debt crisis and flooding in Thailand. Headline inflation declined to 3.53% in December as food and transportation prices fell with improved flooding conditions. Government bond yields rebounded at the end of December on news of large planned bond issuances in the coming quarters.
KBank Capital Market perspectives Dec 30 flooding and economic slowdown in n...KBank Fx Dealing Room
The Thai economy contracted sharply in November 2011 due to the severe flooding which impacted all economic sectors. Key economic indicators such as manufacturing production, exports, private consumption, and investment all declined significantly from the prior month and year. The Thai baht also weakened substantially against the US dollar in November amid the slowing global economy and flooding impacts on Thailand.
- Exports and imports in Thailand fell in November, with exports down 12.4% year-over-year and imports down 2.4%, leading to a larger trade deficit of $1.373 billion.
- The declines were due to ongoing effects of severe flooding during the quarter, which disrupted manufacturing production and supply chains. Exports of industrial goods and vehicles fell sharply.
- Weak exports will likely warrant a more dismal economic outlook, leading the Bank of Thailand to consider further interest rate cuts to support recovery. The document forecasts USD/THB volatility in the first half of 2012, with a target rate of 29.50 by year-end.
The document provides a monthly economic and foreign exchange outlook report. It discusses several topics:
1) Concerns over the Mayan calendar prophecy and global economic outlook in 2012.
2) Expectations that the US dollar will weaken and Thai baht will strengthen against the dollar in 2012.
3) Analysis showing high global debt levels could continue weighing on economic growth.
4) Charts tracking economic indicators and currency movements.
The report concludes by examining relationships between the euro/US dollar exchange rate and the US dollar/Thai baht rate. It finds the baht tends to strengthen as the euro strengthens against the dollar.
The document provides market updates on currency movements and interest rates from December 2011. It summarizes data on the EURUSD, USDTHB, crude oil, gold prices, and Thai and US interest rates. The USDTHB movement shows a narrow trading range in 2011. The document suggests the THB may weaken against the USD initially in 2012 before strengthening. It also notes the USDTHB is correlated with the SET index and EURUSD. Crude oil is forecast to trade between $75-110 per barrel in 2012. Gold support is seen at $1,500 per ounce. Soft interest rate environments are expected in Thailand and the US in the first half of 2012.
- The Thai stock market fell, with the SET Index down 19.09 points, while foreign investment in Thai stocks increased.
- The Thai baht strengthened against the US dollar and Japanese yen. Gold prices declined sharply, prompting investors to sell gold and cover stock losses.
- The Thai economy grew 3.5% year-over-year in Q3, below forecasts, as industry faced shortages from the Japanese tsunami.
- US and European stock markets declined sharply, pressuring global markets, as the US debt super committee failed to reach an agreement.
The Thai economy grew more slowly than expected in the third quarter of 2011, expanding just 0.5% quarter-over-quarter and 3.5% year-over-year. Private investment and exports continued to drive growth, but agricultural output declined due to floods. Household consumption growth also slowed as consumers became more cautious due to flooding. The economy is expected to grow only 1.5% for the full year due to flooding impacts. The Bank of Thailand is expected to cut interest rates by 50 basis points to boost the economy and restore confidence.
The document provides a daily market update and analysis for Thailand and other global markets. It discusses the slight rise in gold prices and decline in stock markets due to ongoing concerns about the European debt crisis. Thai bond yields fell slightly and the Bank of Thailand governor signaled readiness to cut rates further if needed to support the economy after recent floods. The US dollar rose against other currencies as investors sought safe havens.
The Bank of Thailand held its policy rate unchanged at 3.50% due to the impacts of flooding in Thailand and global economic uncertainties. While inflation remains a concern, reconstruction efforts are expected to boost domestic demand and the flooding will negatively impact production capabilities and consumer spending. One MPC member voted for a rate cut but the committee decided to keep the rate on hold until at least the end of 2012 given weak global economic growth prospects.
K bank fx & rates strategies an update of eurozone
1. .Mean S FX & Rates Strategies
KBank Economics /
Strategy
An update of the Eurozone debt problems
FX / Rates
23 December 2010
Eurozone’s debt problem continues to be a major concern for the
stability of the eurozone economies and a source of financial Nalin Chutchotitham
market volatility nalin.c@kasikornbank.com
EU members established three key measures to calm the
market’s concerns, as well as to deal with immediate obligations
For now, the emergency funds seemed sufficient to cover for the
combined obligations of the PIGS governments, without further
borrowing from the market
Yet, eurozone economies will continue to face liquidity concerns
in the short-run and longer-term worries on solvency
Disclaimer: This report
We think that ultimate solvency involves the eurozone’s political must be read with the
decision, something hardly predictable by economic facts Disclaimer on page 8
that forms part of it
The euro would continue to fluctuate in value against major
currencies, as it provides a mechanism for the market to cross-
check the progress made by debt-laden economies
KBank Capital Market
Research can now be
accessed on Bloomberg:
Eurozone’s debt problems and measures so far KBCM <GO>
The markets has indeed factored in a large amount of information with regards to the
extent of eurozone’s debt problems, especially for the maturing debts in the medium term
of 3-5 years’ time as well as the amount of fiscal deficit reduction. This information is
reflected through the decline in the value of eurozone’s sovereign bonds and the
fluctuating value of the euro. However, there remains a large amount of uncertainties,
namely, the ability and political will of governments to cut deficits as planned, the
coordination among member countries with regards to speedy agreements over crisis
management measures and joint commitment to the euro system.
Fig 1. EUR/USD fluctuates due to market’s sensitivity of Fig 2. EUR/CHF falls as investors shirted money into a
Eurozone’s debt problems European economy with stronger balance sheet
1.70 1.70
1.60
1.60
1.50
1.40 1.50
1.30 1.40
1.20
1.30
1.10
1.00 1.20
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
EUR/USD EUR/CHF
Source: Bloomberg, KBank Source: Bloomberg, KBank
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2. In any case, the eurozone has established three key measures to calm the market’s
concerns, as well as to deal with immediate obligations, such as repaying maturing debts
in the near-term, meeting deadlines for next fiscal year’s fiscal budget plans and so forth.
(Please see details in the table below) The establishment of the facilities was
instrumental to ameliorating market’s concerns over Greece’s debt back in May of 2010.
However, given that the eurozone does not only have a single troubled member but
several of them, the concerns could no longer be limited to country-by-country conditions
but the market has turned its attention towards risks of debt contagion and continuity of
economic recovery of the whole eurozone in the few years ahead.
Table 1. Facts about the three financial support facilities after May 2010
Description Caveats/Concerns
• Approved on May 3 with €80 billion facility from euro-area
rd
• Greece continues to face challenges in trying to achieve
members’ contributions and another € 30 billion from the IMF the targeted deficit reduction, among other conditions
that would maintain its eligibility for the future
• Funds are set up for 3-year period and conditions applied to Greece disbursement of aid funds
€110 billion package before each disbursement i.e. Greece must be making sufficient
for Greece progress towards cutting deficits down to 3% of GDP by 2014 • There remains a possibility that Greece cannot raise
funds in the market after the expiration of the aid
package. This will further increase the burden of EU
nations
• Worth 60 billion euros and administered by European Commission • The size is relatively small compared to debt problems
in the eurozone
• Backed by EU budget and viewed as good credit
European Financial
• May be against Article 122.2 of EU Treaty
Stabilsation
Mechanism (EFSM) • Issue with several guarantee (EU Budget) is that there
is no clear collateral guarantee from individual member
states
• Created by the 16 euro area member states following the decisions • Chance of EFSF’s credit rating being downgraded from
taken May 9, 2010 and jointed owned by euro-area member states AAA
• Overall rescue package worth €750 billion • Creates moral hazard for the borrowers
• Tenure of 3 years - up to June 2013, (or if loans are made, the • Due to the correlation between the Eurozone
maturity of the financing instruments) economies, the quality of the collateral are likely to be
correlated with the health of the borrowers’ economic
European Financial • Capacity to issue bonds guaranteed by EAMS for up to € 440 billion health
Stability Facility (EFSF) for on-lending to EAMS in difficulty
• Issuance of EFSF debt is only made after a loan by a
• Bonds issued by EFSF are guaranteed by member-states based on member stakeholder, a timing which is viewed
each member state’s share of ECB capital. Hence, there is negatively by the market and signals that conditions had
individual guarantee as opposes to the EFSM worsened
• Total amount of guarantee covers up to 120% of total debt issuance
Source: Professor Anne Sibert, University of London and CEPR via http://www.europarl.europa.eu/activities/committees/studies.do?language=EN and selectively summarized by KBanK
Note: There may be opinions added by the author and other facts from Bloomberg and Reuters
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3. Table 2. Contributions by each Euro Area Member State to the EFSF
Guarantee commitments
Country Share of total (%)
(EUR billions)
Germany 119.4 27.1
France 89.7 20.4
Italy 78.8 17.9
Spain 52.4 11.9
Netherlands 25.1 5.7
Belgium 15.3 3.5
Greece 12.4 2.8
Austria 12.2 2.8
Portugal 11.0 2.5
Finland 7.9 1.8
Ireland 7.0 1.6
Slovak Republic 4.4 1.0
Slovenia 2.1 0.5
Luxembourg 1.1 0.3
Cyprus 0.9 0.2
Malta 0.4 0.1
TOTAL 750 100
Source: www.efsf.europa.eu
Limitations of mechanisms
There are several limitations with the present mechanisms for solving the debt problems.
The most obvious one is being the mismatch between the projected time needed to solve
the problems and the expiration of the mechanisms put in place. For example, the largest
pool of funds, the EFSF, is due to expire in June 2011. However, there are many more
problems than just the expiry date of the fund. Below, we quote Professor Anne Sibert
from the University of London and Centre for Economic Policy Research (CEPR), who
was requested by the European Parliament’s Committee to analyse the consequences of
the EFSM and EFSF below in a study paper dated Sep 2010. In any case, the gist of her
statement is that the establishment of emergency funds would result in moral hazard
problems and indicate a transfer of wealth from the funds provider to the funds user. At
the same time, the dealings of such bail-out measures may also run against the
fundamental laws that helped to form the European Union itself.
The new facilities were created by European Union policy makers to lower the borrowing
costs of financially troubled countries. The idea is that if the euro area borrows as a whole,
it can get better rates than a troubled country can and it can pass on these rates to this
country. Unfortunately, the lower borrowing costs come with a political problem. If some
euro area countries must make good on the euro area’s guarantee as a whole in the case
of one or more other euro area countries defaulting, then this is a transfer of wealth from
these countries to one or more others. It may be seen as a violation of the so-called “no
bailout clause”, Article 125.1 of the Treaty (consolidated version) which says:
“The Union shall not be liable for or assume the commitments of central governments,
regional, local or other public authorities, other bodies governed by public law, or public
undertakings of any Member State, without prejudice to mutual financial guarantees for the
joint execution of a specific project. A Member State shall not be liable for or assume the
commitments of central governments, regional, local or other public authorities, other
bodies governed by public law, or public undertakings of another Member State, without
prejudice to mutual financial guarantees for the joint execution of a specific project.”
Indeed, the fiscal austerity measures either announced or adopted by the eurozone
governments have created dissatisfaction among their people, both in the fund-providing
nations and the fund-receiving nations. Hence, the financial and political risks involved in
33
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4. future measures are likely to be much greater, should the existing ones be insufficient. At
the same time, the euro-area government continues to run the risk of making insufficient
efforts in the eyes of investors and other market players. This problem had been one of
the key sources of volatility in the financial market in the year 2010 and could potentially
reduce the effectiveness of the measures taken.
Are the emergency funds sufficient?
Next, we will consider the impact of debt repayment of Ireland, Spain, and Portugal on
the emergency facilities, excluding the Greece’s debt burden. The government of Greece
had been granted a separate aid package worth €110bn, subject to a set of criteria for
reduction of debt levels into the future. This amount should be sufficient to cover for
Greece’s repayment obligations over two years. The amount of treasury bills maturing in
the year 2011 is €8.8bn and €9.2bn if all of the bills maturing in 2010 are refinanced. As
for maturing bonds and interest payments for the years 2011 and 2012, they are
separated into €40.5bn and €41.6bn, respectively. The budget deficit plan passed by the
Greek parliament on December 23rd is €17bn for the year 2011 (about 7.4% of GDP). In
total, this amounts to €108.3bn of financing need for the next two years, excluding the
budget deficit of the year 2012. There is some risks to the funds allocation for Greece
should government spending gets out of hand. However, given that political pressure
from Greece’s neighbors would be substantial, the funds allocated should be sufficient for
the next two years.
Let’s now take a look at the other three troubled economies – Ireland, Spain, and
Portugal. Below is the amount of debt repayment burden plus financing needs from
Treasury bill rollovers and budget deficit borrowing. The total sum of financing
requirement for the three governments comes up to about €313.0bn in the year 2011 and
€155.1bn in the year 2012. Assuming that the three governments do not borrow from the
market in the next two years, the EFSF should, by itself, be able to cover for all the
required funds. However, the numbers here are based on many assumptions, including
the halving of budget deficits in the year 2012 from 2011 and that the troubled
governments remain within the PIGS group. In any case, the overall burden of the
governments is immense, as indicated by the financing needs measured against annual
nominal GDP.
Table 3. Government debt repayment burden in 2011 unit: billion of euros
Bond Interest
Deficit Treasury bills Total Grand total
principal payment
Spain 92.7 45.1 18.7 76.9 233.4
Ireland 19.3 4.5 4.2 6.0 34.0 313.0
Portugal 13.3 9.5 4.7 18.1 45.6
% of nominal GDP
Spain 8.8 4.3 1.8 7.3 22.2
Average
Ireland 12.1 2.8 2.6 3.8 21.3
23.5%
Portugal 7.9 5.7 2.8 10.8 27.1
Government debt repayment burden in 2012 unit: billion of euros
Deficit
Bond Interest
(assuming ½ Treasury bills Total Grand total
principal payment
of 2011)
Spain 46.4 46.4 16.6 6.9 116.3
Ireland 9.7 5.6 4.0 0 19.3 155.1
Portugal 6.7 8.5 4.3 0 19.5
% of nominal GDP
Spain 4.4 4.40 1.58 0.65 11.03
Average
Ireland 6.1 3.51 2.51 - 12.11
11.6%
Portugal 3.9 5.06 2.56 - 11.52
Source: European Commission ( May forecasts), Bloomberg, nominal deficits are approximated using nominal GDP in 2009
Estimations exclude Ireland’s injection of capital into its banking sector
44
4
5. Fig 3. Financing needs in 2011 - 2012
billion euros
350
300
250
200
150
100
50
0
2011 2012
Spain Ireland Portugal
Source: European Commission, Bloomberg, KBank
Liquidity vs. solvency problems
The eurozone debt problem would take many years to solve and its impacts on global
financial market would have to be separated into issues of liquidity concerns or solvency
concerns. Liquidity concerns involve the ability of the government to make timely
payments of their immediate obligations, including maturing bonds and due interest
payments. Liquidity concerns could be potentially lessened with the help from the EU
emergency aid packages as well as the governments’ demonstration of a believable
economic recovery and growth going forward. As for the longer-term solvency concerns,
further analysis is needed to determine the ability of the government to repay its debts
after the aid packages expire. These include concerns for possibility of eventual default
risks and member country’s exit from the euro zone and currency devaluation.
Table 4. Impacts to the euro-area due to liquidity and solvency conditions of eurozone governments
Issues Impacts
- Euro currency will weaken and governments have to tap into the
Financing of maturing debts in the funding of emergency packages
near-term
- Raises the problem of moral hazard and leads investors to
demand more details of other potential troubled governments
- Governments are forced to borrow at higher costs, exacerbating
Liquidity
their debt problems
Refinancing is costly as markets - ECB would come under pressure as the purchaser of eurozone’s
drive sovereign bond yields higher sovereign bonds who tries to keep bond yields low
- Private sector will have to bare higher costs of borrowing as well
as the reference
- one announcement of default by a member of the eurozone can
send a ripple-effect across the region that could lead to investors’
panic
Ability of government to generate
sufficient tax revenues to pay for
Solvency long-term obligations and - questions are likely to emerge with regards to the effectiveness
eventually bring down debt-to- of cooperation among eurozone (and also EU) members in
GDP ratio emergency situations
- the stability of the euro system and the credibility of the ECB
would be at risk as well
Source: KBank
55
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6. For both of the concerns, there is a need for governments to ensure trustworthy efforts in
debt and deficits reduction going forward. Once again, we iterate that this sticking to
plans would be difficult across Europe, given the weak economies, higher borrowing
costs, “piggy-backing” of some economies by the others, and limited adjustments in the
value of the euro. The most obvious evidence of why the market continues to have
mistrusts in the governments came from historical experience. From past perspective,
countries with more severe debt problem were seemingly less discipline in term of
keeping budget deficit under 3% of nominal GDP. Hence, it is logical for investors to
doubt the success of the austerity plans of these economies as well as the government’s
commitment to keep to their promises. Hence, we expect that the euro would continue to
fluctuate in value against other major currencies, as it provides a mechanism for the
market to cross-check the progress made by debt-laden economies.
Fig 4. Historical budget deficit/GDP ratios Fig 5. Historical budget deficit/GDP ratios
% of GDP % of GDP
4 6
2 4
2
0 0
-2 -2
-4
-4
-6
-6 -8
-8 Euro area (16) European Union (27) -10
Germany France -12 Euro area (16) Italy Portugal
-10 -14
United Kingdom Ireland Greece Spain
-12 -16
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Eurostat, KBank Source: Eurostat, KBank
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8. Disclaimer
For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or
sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from sources we
believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained
herein. Further information on the securities referred to herein may be obtained upon request.
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