The European Debt Crisis

What caused the global recession of 08?

And thus caused the European debt crisis

Basic Economics - The Bank Run

• “It’s a Wonderful Life”

America Sneezes and the World gets Pneumonia!

• The Housing bubble bursts 2006

The bubble burst

• By August 2008, 9.2% of all U.S. mortgages outstanding were either delinquent or in foreclosure. By September 2009, this had risen to 14.4%. Between August 2007 and October 2008, 936,439 USA residences completed foreclosure.

The American Recession of

2008

• Adjustable rate mortgages/Subprime mortgages• Lehman Brothers & mortgage securities (MBS)• Fannie Mae• Moodys and other bond rating agencies• Property taxes

What Caused the Crisis?

• American Housing Market• UK Housing Market• Profligacy in the PIIGS• Decades of Low Interest Rates • Inflation in Wages and Goods• Overleveraged Banks• Lack of competitiveness

European Exposure to US Housing Bonds

Country Banks Losses• Britain

Royal Bank of Scotland US $15.6 bn. HBOS US $9.5 bn. Barclays US $6.7 bn.

• Switzerland UBS US $48.6 bn

Credit Suisse US $13.7 bn. -• Germany

BayernLB US $14.4 bn.IKB Deutsche Industriebank US $14.0 bn. Deutsche Bank US $12.7 bn

• FranceBNP Paribas US $5.8 bn.

Debt in the Euro Zone (17 of 27states)

Debt in the Euro Zone (17 of 27states)

• Can the Governments in Greece, Portugal, Ireland, Spain and most importantly Italy cover their $4.2 trillion in borrowing without wrecking European banks?

Greece as a Case Study

The darkening clouds of civil disobedience and anarchy in Greece

European Exposure

The end of EMU – “Europe’s Melancholy Union”

Will Greece bring down the Euro?

Which Path to Recovery?

Austerity (Taxes, spending cuts) or

Growth (Tax and regulation cuts)

US Response – Ambassador Smith (CU Grad) and Secretary of State Clinton

The Fed v. The European Central Bank

The US Solution vs. the European one

What can they do?

• The Greek gray economy/Greek culture• Euro zone writes off half of the Greek debt – EFSF• Do the Germans, French and Dutch have to continue to

pay?• Austerity and taxes vs. Priming the pump• Growth – Competitiveness, bureaucracy, deregulation,

labor & the welfare state (The German example)• The ageing population• Integrate or Disintegrate

– Break up the Euro or even the EU (Nationalists – Anti-globalists)– More Sovereignty to Brussels