Euro crisis

Disenfranchised left-leaning portions of the population into the economic mainstream. Customarily run large deficits. Since 1993 debt to GDP has remained above 100%.

Greece
In May 2010, the Greek government deficit was Country's largest country's official industries are tourism Misreported be 13.6%which is one of the estimated to the and shipping economic statistics relative to GDP. Greek highest in the world 70% of Greek government bonds are held government debt was estimated at 216 externally billion in January 2010 Currency devaluation helped finance the borrowing. Was initially able to borrow due to the lower interest rates government bonds could command.

Borrowing

Default in borrowing

Debt to GDP more than 100%

Downgrading of the rate

Increase the yield rate.

 Austerity policies are often used by governments to reduce their deficit spending while sometimes coupled with increases in taxes to pay back creditors to reduce debt A total of 110 billion has been agreed

 Irish crisis was due to the state guaranteeing the six main Irishbased banks who had financed a property bubble.

Govt help for the banks rose to 32% of GDP

85 Bailout

Encouraged over expenditure

Funding of unnecessary consultancies

Slippage in public works & salary hikes of top mgmt

78 billion euro bailout

Verge of bankruptcy

Risky credit, public debt creation & mismgmt of funds

Portugal Credit rating given Junk status

 Not affected much Spain's government announced new austerity measures designed to further reduce the country's budget deficit. Spain's public debt (60.1% of GDP in 2010) is significantly lower than that of Greece (142.8%), Italy (119%), Portugal (93%), Ireland (96.2), and Germany (83.2%), France (81.7%) and the United Kingdom (80.0%)

 The government deficit of 5% was relatively modest and Belgian government 10-year bond yields in November 2010 of 3.7% were still below those of Ireland (9.2%), Portugal (7%) and Spain (5.2%). Belgium's high personal savings rate, the Belgian Government financed the deficit from mainly domestic savings, making it less prone to fluctuations of international credit markets

Cancel or delay some spending

Under US law, an administration Debt ceiling not Borrow shortfall by raised can spend only if it has govt would issuing debt cut spending to 40% sufficient funds to pay for it. These funds can come either from tax receipts or from borrowing by the United States Ensuring payments Failing to increase Department of the Treasury of US securities
ensures that govt doesn't default debt would cause govt to default

East Asian crisis

High interest rates attractive to foreign investors Large inflow of money and experienced a dramatic run-up in asset prices Thailand, Malaysia, Indonesia, Singapore, and South Korea experienced high growth rates, 8 12% GDP Only growth in total factor productivity, and not capital investment, could lead to long-term prosperity but it was just opposite in Asia.

What happened???
Asian crisis created by policies Govt. raised domestic interest rates

Allowed currencies to float

Large credit created economic climate and pushed up asset prices

Depreciative pressure on exchange rate

Asset prices collapsed causing individuals and cos. to default

Withdrawal of credit from crisis countries causing bankruptcy

Thailand
The short-term capital flow was expensive and often highly conditioned for quick profit. Excessively dependent upon exports for their economy Exports to GDP ratio grew from average 35% in 1996 to over 55% in 1998 Thailand, Indonesia and South Korea had large private current account deficits and the maintenance of fixed exchange rates encouraged external borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors

Massive speculative attacks

 As the financial crisis spread the economy of Singapore dipped into a short recession. The short duration and milder effect on its economy was credited to the active management by the government. For example, the Monetary Authority of Singapore allowed for a gradual 20% depreciation of the Singapore dollar to cushion and guide the economy to a soft landing

China

RMB had been pegged to the US dollar at a ratio of 8.3 to the dollar Almost all of China's foreign investment took the form of factories on the ground rather than securities, which insulated the country from rapid capital flight GDP growth slowed sharply in 1998 and 1999 The Asian financial crisis convinced the Chinese government of the need to resolve the issues of its enormous financial weaknesses, such as having too many non-performing loans within its banking system, and relying heavily on trade with the United States.

Japan
Excess liquidity in the financial system caused an asset and stock market bubble. However, in the last 1980s, the Japanese monetary authorities were worried about inflation and so doubled interest rates. They were then slow to reduce them. Fall in house and share prices, which lasted 10 years. It is one of the longest bear markets on record Higher interest rates and slumping asset values caused an increase in loan defaults Loan defaults were compounded because Japanese banks had made a series of bad lending decisions.

 The Japanese economic miracle was based on a strong degree of government intervention. When the crisis came, banks were encouraged to continue lending to firms, even if on verge of bankruptcy. There was a failure to acknowledge the true extent of the problem, hoping asset prices would rebound (they didn't) Inflation expectations fell to negative. Deflation made normal demand side policies ineffective.

IMPACTS OF THE 1997 ASIAN FINANCIAL CRISIS

Consequences In Asia
Macroeconomic-level effects, including sharp reductions in values of currencies, stock markets, and other asset prices of several Asian countries. The economic crisis also led to a political upheaval, most notably culminating in the resignations of President Suharto in Indonesia and Prime Minister General Chavalit Yongchaiyudh in Thailand. More long-term consequences included reversal of the relative gains made in the boom years just preceding the crisis.

Effects on the currency

CURRENCY Exchange rate (per US$1) June 1997 Thai baht Indonesian rupiah Philippine peso Malaysian ringgit South Korean won 24.5 2380 26.3 2.5 850 CHANGE

July 1998 41 14150 42 4.1 1290 40.2% 83.2% 37.4% 39.0% 34.1%

Effects on the GNP

Country GNP (US$1 billion) Change

June 1997
Thailand Indonesia Philippines 170 205 75

July 1998
102 34 47 40.0% 83.4% 37.3%

Malaysia
South Korea

90
430

55
283

38.9%
34.2%

Consequences outside Asia

International investors were reluctant to lend to developing countries, leading to economic slowdowns in developing countries in many parts of the world. The powerful negative shock also sharply reduced the price of oil, which reached a low of about $11 per barrel towards the end of 1998, causing a financial pinch in OPEC nations and other oil exporters. This reduction in oil revenue contributed to the 1998 Russian financial crisis, which in turn caused Long-Term Capital Management in the United States to collapse after losing $4.6 billion in 4 months.

Impact of the Euro crisis

Decline in domestic demand in the United States resulted in the narrowing of current account deficits in US. According to IMF forecasts for 2009 Japan's surplus is also forecast to shrink while China's surplus would actually increase slightly. Export demand collapsing even more strongly than import demand. The crisis appears to be forcing the private sector to increase saving rates to adjust to the excessive leverage. http://ec.europa.eu/economy_finance/publications/publica tion15887_en.pdf