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Financial and economic crisis of 2008 in the EU – Roots, effects and

aftermath.

- Economic History approach
- Theory
- Statistics


I. Brief Introduction to the EU


II. The financial and economic crisis of 2008 and its effect on the European integration

- The American crisis spread to EU instantaneously
- All countries were infected
- Housing bubbles
- Trust is the first victim of the financial panic
- FDI inflow declined by nearly 34% by 2008.

- In October 2008 bailouts, huge bank losses and the freefall of stock exchanges

- In November 2008 the EC announced a 200billion recovery plan – European Economic
recovery Plan (5% of the EU’s aggregate GDP)

- The decline in the entire economy became unavoidable.

- Lack of credit, loss of stock values, confidence and trust slowed down the European economy

- In February 2009, the euro-zone’s GDP dropped by 1.5% the industrial output declined by
3.5% in a year

- Europe declined into a major economic recession in 2008/2009.

- The previous super performers Baltic countries suffered a dramatic decline

- The recession did not last for years and the Baltic countries returned to the pre-crisis growth
pattern

- Rapid recovery of Europe after the crisis?
- Five countries reported recession on the peripheries – crisis of the common currency

The crisis of the euro

- Transformation a financial and banking crisis into a sovereign debt crisis
- Public indebtedness : 137% in Greece, 119% in Italy, 85% in Portugal, 79% in Great Britain
- The common currency was endangered

- Harsh austerity policy

- The European banks had to be recapitalized

- The general confidence in the European Union disappeared

- Selling the government bonds became increasingly difficult

- Increasing interest rates – extremely expensive loans for the debtors countries

- The possibility of default in two or three euro-zone countries endangered the euro



Why trouble makers?
- Indebtedness became dangerously high in Italy and Portugal
- Household debts!
- Crisis hit countries were located on the eastern and southern peripheries of Europe
- PIIGS
- Sick men of the EU
The PIIGS as peripheral countries were latecomers to industrialization and economic modernization
They maintained a dual economy and institutional weakness
Backwardness means clientalism and corruption
The state is an enemy – tax avoidance is a virtue

TAX AVOIDANCE
Tax collection has virtually collapsed in Greece in 2011
In Italy 0.17% declare income over 200 000$ and 210 000 luxury cars are sold a year
Social networkings is a strong substitute for efficient institutions
Black economy 25-28% of the greek GDP and 22-26% of the Italian GDP


Szabolcs.pasztor@econ.unideb.hu
Faire summary du cours de 5 pages a rendre avant vendredi 21h



Irrzsponsible borrowing and spending worked during years of prosperity, the financial crisis stopped
the cash flow
All of a sudden getting fresh money and credit became extremely difficult
The greek crisis did not come to surface in 2008
As it turned in 2008 the budget deficit was 12.7%, 300 mn € public debt, 110% of GDP




Lesson 7 Changing patterns of consumption and reckless borrowing in the EU

Globalization and consumption
- Imitating the previously never heard consumption patterns
- Consumption as a value in itself
- Consumption has become a pleasure
- Product as a pleasure, pleasure of the advertisement and purchase
- The EU as a special region

Stages in the development of consumer society
- 1880- 1945 : Mass production and standardized goods – modern consumer in the west
- 1945 – 1970 : Mass consumption society, goods available for every social group (Fresswelle –
eating wave, Kleidungswelle – clothing wave, Reisewelle – Travel wave)
- 1970-…. : Society is organized for consumption

“ Marketing did not promote materialism. Quite the opposite. It promotes a narcissistic pseudo
spiritualism based on subjective pleasure, social status, romance, and lifestyle as a product’s mantal
associations become more important than its actual physical qualities “
“Shopping and spending is the main form of construction and reconstruction of self identity. A
personalized self identit can be communicated to others through the use of various symbols”

Consumarism in Europe

- A relatively new phenomenon that began in the 70’s-80’s
- The USA had a tremendous demonstration effect on the European countries
- The latecomer and poorer countries wanted to follow suits


Giddens

“ The consumption of ever novel goods becomes in some part a substitute for genuine development
of self; appearance replaces essence”
“Mental illness of narcicissism, the intense need for admiration, a strong status seeking desire, to
display wealth, status and taste”
MARC DAVIS : COMMERCIALIZATION
“Every aspect of human social life across the life course has been commercialized including music,
sports, the human body and even death”
Today capitalism produces not only goods and services, but new desires what to have. The new
products, besides satisfaying new pleasures, also have a mental association that is sometimes more
important than the financial qualities

ERIC HOBSAWN
“Even an average person could live as only the very wealthy lived in their parents’ day”

JK GALBRAITH
“Demand depends on corporate production and manipulation of the consumers and the “invisible
hand” plays a very limited role”

SPAIN AND PORTUGAL
So called noble societies where the small noble elite and the gentry’s attitude formed the “national
characteristic “ living beyond one’s means spending more than one earns, was an old tradition that
expressed elegance. Thrift was look down upon.
“The 20
th
century is recognized as a moment when traditional fears of debt and feelings about the
value of thrift were overtaken by the appeal of a hedonistic life style”



CONTINUOUS INNOVATION

Seneca

The advertising can have such a huge effect of the stimulation of consumption that people are willing
to shoulder significant debts in order to satisfy…
Molinari es Torino 2009
The aggregate advertisement has a huge impact on the aggregate consumption

BALZAC
The most successful business builts on vanity, egoism and narcisstic attitude. These feelings never
die”

CREDIT CONSUMARISM
- Consumption as a way of life and source of prestige, inspired by ever newer consumer goods
easily led to overspending
- People became able and were attracted to spend more that they earned
- Credit consumerism was the most extreme in the USA

FUTURE ALTERNATIVES FOR THE EU AND THE EURO ZONE
- Mistaken policy mignht lead to the collapse of the entire EU and the euro
- Two Tier Europe

STRUCTURAL INSTITUTIONAL CHANGES IN THE EUROPEAN UNION

- After the crisis the union has created safety nets for the member countries
- European Financial Stability Facility
- Movement toward fiscal unification cautiously progresses
THE RETURN TO THE REGULATED MARKET SYSTEM

- Europe had to dig deep into the roots of the crisis and eliminate them
- The EU cannot introduce regulations alone
- Regulation and supervision belong together, the creation of a new institutional frameworks
signal further institutional and structural changes.

CRISIS MANAGEMENT : STIMULUS PACKAGES AND BAILOUTS
- Several governments turned to the old Keynesian method and attempted to revitalize the
ailing economy
- In November 2008, the EC initiated a 200bn stimulus plan
- The EU temporarily suspended SPG regulation

CRISIS MANAGEMENT: AUSTERITY MEASURES
- The measures served the reduction of the deficit, but they decreased domestic consumption
and economic growth
- The EU now has to take steps to end stagnation and decrease unemployment and generate
growth
- Crisis management means austerity and stimulus



SUMMARY

- Better understand the financial crisis and the impact on the European integration
- European integration is the most successful of the word
- Highly interesting topics like cases studies
- Differences in the countries : in some problems emerge even before the crisis, the crisis just
make them appearing
- USA was not prepared for the crisis
- It was easy for the crisis to find the weakness of the european integration
- Weak points on the peripheries of the European union ‘south and east’
- Every player is important in the European integration and the weakest players are the most
important in this integration because they can be the foundation of the integration
-