European World Crisis

7/29/2019 European World Crisis

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European World Crisis(Portugal)

Presented by:

Mustafa Shahid

Affan Hussian

Asim Farooq

Hamza KhanFehar Arshad


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Introduction To Portugal Located in South Western Europe

Capital is Lisbon

Connected with Spain and Atlantic Ocean

Governmental System is Parliamentary System, Unitary State &

Constitutional Republic

A few Institutions:

European Commission

European Parliament

European Maritime Safety agency

European Monitoring Center for Drugs & Drugs Addiction


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Institutional Sense Institutions are structures and mechanisms of Social Order

Prevailing for Individuals

Behavioural patterns of a society

Central Concern for Law

Political Rule Making and Enforcement

Evolution of Institutions

Government needs Institutions

Banks are Institutions as well

School, Colleges & Universities are Institutions as well


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PIIGS To know what PIIGS stand for

P- Portugal

I-Italy

I-Ireland

G-Greece

S-Spain

Why are these countries called PIIGS?

World Economic Recession of 2008-2009

They were the most unstable economies in European Union

Popularity due to their National Debts


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Governments Role in European Financial

Crisis Very Prominent role

Privatization

Fiscal Austerity

Foreign Direct Investments

Trade Liberalization

All done by IMF

Implemented by Government through Institutions

Government bought loans from Germany, UK, France, Spain &Greece


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Reasons For Portugal Crisis A glance at EU loans (starting of Crisis)

Greece owes $367 Billion mostly to other European Economies

Ireland owes $865 Billion mostly to other European Economies

Spain owes $1 Trillion

Owes to France Britain &Germany

Italy owes $1 Trillion

Spain owes to Italy about $41 Billion

Italy Owes to Spain about $27 Billion


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Serious Crisis after World Recession

Being a member of PIIGS survival was on Sovereign Debts

Sovereign Debt = External Debt

Debt obtained using Lenders Currency

High risks involved for Defaulting

Decrease in Value Power of Currency

For example one room to rent costs 400

Monthly Income about485

Then how do you expect people to Survive?


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Increase in social security problems due to Crisis

Causing more threat of unemployment

Decrease in public spending cuts in order to pay off loans

Increase in Value Added Tax (VAT)

Leading to more unemployment

Removal of Subsidies

Private Sector Debt


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To Whom Portugal Owes? Foreign debt amounts to 251% of GDP

Equivalent to about 38.000 Euros per person

Owes to Spain about 67.5 Billion Euros

Portugal owes Germany 26.6 Billion Euros

Portugal owes France 19.1 Billion Euros

Portugal owes UK 18.9 Billion Euros

Portuguese banks owe 7.5 Billion Euros to Greece.


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IMF and Euro Zone


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IMF And Portugal European Union a heavy Debtor of IMF

Greece, Ireland & Portugal given loan of more than $100 Billion Each

Under Extended Fund Facility IMF approves a Loan of 1.48 Billion Euros

Total EFF arrangement about 21.13 Billion Euros ( as of July, 2012)

In May, 2011 IMF approves a loan of 26 Billion Euros

25.2 Billion Euros from European Union

Total Bail out package of $100 Billion

A heavy influence of Portuguese Crisis by IMF and its Policies


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Economic Downfall Unemployment 10.4%

Prices Rising

Pensions cut

Wages cut Collapse of housing market

Drop in foreign Investments

Floundering domestic industries

Pumping Public Money into Banks

Banks to meet European Banking Authority dead line

Weakest growth rate in Euro Zone

Number 46th in Economic Crisis

Growth less than a 1% over the last decade

Any bailout package or help will come with strings attached


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European Government Efforts Short Run Solutions

Focus more on Public Expenditures

Fiscal Consolidation

Structural Reform

Fiscal Austerity Measure (Mostly)

Financial Stability

Writing down who owes what

How much debt has been paid in written form

Losses have to be allocated in a manner


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Euro states to provide upto 200 Billion Euros Bilaterally to IMF

150 Billion should be in Euro Currency

Following Strict Fiscal Rules Correction of political tensions

Containment of sovereign debts

Print more money and pay off peripheral countries loan

Mostly bailout packages by Government

ECB buying Government bonds

LTRO (Long Term Refinancing Operation)


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Default a Problem? Default risk tells about a bond holder might become insolvent and not honor

his/her debt obligations

Defaulting would mean the whole economic ethos has broken down

Banks to hold assets relative to the debt they hold

Defaulting on Debt would mean decrease in Banks assets

If banks collapses so does the economy

Defaulting though is not as bad as it is termed

USA defaulted 3 times in 20thcentury the world didnt end

Default NOW or Suffer a More Expensive Crisis Later

Defaulting does not End the World rather it pushes to form a new system of

Economy


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Start Fresh or Walk Away A fresh start will only come by defaulting in present

You cant rely on short term solutions for ever

Sooner or later you will have to default

Defaulting now would be painful but at a lesser expense than defaulting

later

Defaulting would result in Capital Flight but to where?

You CANNOT walk away from DEBT

Portugal in heavy terms & conditions of debt from both ECB and IMF

Loans are given on the terms & conditions of Creditor & its will to speculate

a certain economy

The question of Walking Away has no place here


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Political Issues Economics and Politics two sides of a same coin

Euro Zone ONE country away from dismantling

Measures such has increasing Taxes and cutting budgets had, have and will

lead to great protests

You CANNOT operate in the same circle and find answers

Over lapping of interests of EU economies, participating in Political Issues

Any country who quits EU will change the discourse of the Global Economy

and World Financial Markets This constant threat is contributing to more crisis and is Political

Racism Crisis is also increasing with the increase of Political Economic

Financial Crisis


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Fiscal Austerity The Answer? According to Joseph Stieglitz Fiscal Austerity is a tool used by IMF

European Union Using the same

Fiscal Austerity measures were used by all the 17 countries

Led to more unemployment and political rupture

Portugal in the terms of 2012 declined to apply Fiscal Austerity Measures

Fiscal Austerity includes a decrease in spending and increase in Taxes

When that happens Spending Shrinks which is against the logic of ShortTerm Solution.

It slows Economic Growth


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More problematic for high debt countries

Due to this measure of Fiscal Austerity the entire region slipped into

another recession in 2011

Euro Zone Fiscal Austerity measures are over lapping by its countries

Euro Zone Fiscal Austerity measure could possibly create a new Crisis

in 2013

The whole idea of Fiscal Austerity is to put burden on the consumers

This can not work every time


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Future Outlook European Union ONE country away from a New Crisis

The collapse of any country can be delayed but not FINISHED

Greece above all seems to be number one to collapse

Euro Zone collapse will be a THREAT Globally

Short Run Measures are DONE!

Defaulting seems to be out of the way

Other way out of can be if loans are Forgiven

Another way out of it would be through Gold Standard


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But Eventually only the country holding more Gold will survive

Portugal holding 382 Tons of Gold

The idea is not to sell the stuff. Instead, the proposal is to bring down

borrowing costs by using gold to guarantee the partial repayment of bonds toinvestors in case of a default


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Broke Economies Portugal

Ireland

Italy

Greece

Spain

Germany

France

All of these are Broke Economies

What are broke Economies?

The ones that are already in debt and loaning out


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QUESTIONS! HOW CAN ONE BROKE ECONOMY LOAN OUT ANOTHER BROKE

ECONOMY?

IF BROKE ECONOMIES CANT GIVE MONEY BACK HOW WILL

THEY GET OUT OF IT?

THROUGH BAIL! THINK AGAIN

WHERE WILL THE MONEY FOR BAIL COME?

WHERE IS PORTUGAL GOING TO GET MONEY THAT IT OWES TO

GERMANY IF GERMANY CANT GET BACK THE MONEY THAT IT

LENT TO ITALY?


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Conclusion Money is DEBT Printing Money for Bailout Packages

Broke Economies lent money to other Broke Economies IMF and there 4 Policies played a role in Euro Zone Crisis

Fiscal Austerity Leading to a new Crisis in 2013

Portugal after Greece will be the second to Default

This will change the whole ethos Modern Economics and Finance

Interest Rates needs to be Broken

Documents

European World Crisis