The Future Of Euro Zone

Lets look at what we discussed… .

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Lessons to be learnt… Deficit is always a problem .

How will the Euro Crisis end? .

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• Europe suffers only a light recession. and slowly but painfully grows its way out of its debt problem.Phoenix from the Ashes • Least Bad Outcome • All eurozone governments agree and stick to the strict new borrowing rules. but then recovers. • Most importantly. • Italy and Spain get bailouts financed by the European Central Bank. confidence returns. .

and can spend money wherever needed rescuing banks. paying unemployment benefits.Union • The European Union turns into a political federation – As the financial malaise keeps doggedly returning. – Eventually they agree a complete political union . financing investment in the more recession-mired countries.a democratically-elected government in Brussels that can borrow with the backing of all 17 member countries. – The UK and other EU countries not signed up to joining the euro are asked to exit the EU altogether and join a looser free trade area with much less political influence. . so the eurozone governments call more and more summits and come up with more and more proposals for closer union.

And so the inflation gets out of control. – The European Central Bank prints money to pay for one government or bank bailout after another.They also want to see wages rise rapidly in Germany. . prices rise. the rules are simply abandoned. debts and savings wither away – The euro plummets. so that workers in struggling southern European countries can regain a competitive edge. When a big government breaks the borrowing rules. The ECB tolerates higher inflation .Inflation • The ECB prints money. expecting the ECB to keep lending them newly-printed euros. – But governments continue to spend freely.

– The European Central Bank cuts rates to zero. but the price is years of economic hell – Governments cut spending a deep recession. including governments. but still finds it almost impossible to stimulate the economy. because they are spending more on unemployment benefits and earning less in income tax. – The recession makes it very hard for governments to actually cut their borrowing.Depression • The eurozone stays together. Eventually borrowers. putting the banks in trouble. have to write off their debts. undermining the economy further. who cut back their lending even more. . Companies and mortgage borrowers find it harder to pay their debts. – Consumers and businesses lose confidencecut back their own spending. and many banks and businesses go bust.

is all that remains.and possibly Finland. southern European countries. The newly reintroduced drachma plunges in value. announces a stop to all debt payments and a unilateral exit from the euro.Unravelling • The weaker countries drop out one-by-one – Fearing exit from the euro. bigger. the Netherlands and Austria . . there are growing calls in other. – With widespread anger at spending cuts and recession. or else it will pull the plug on the Greek banks. At best a rump euro zone of Germany and France . The Greek government falls. The European Central Bank insists that Athens freezes people's accounts. and its replacement decides enough is enough. ordinary Greeks empty their bank accounts in droves.

Stock markets and the euro plummet. . And politically acceptable solutions make no economic sense. The eurozone's plan . It was all the private-sector borrowing that did the real damage. Banks collapse.stricter controls on government borrowing . And the politicians run out of ideas and time. Investors stop lending to all eurozone banks and governments alike . Governments run out of money. Anyway. government borrowing wasn't the real reason the euro got into trouble.Meltdown • 2008 again. Workable solutions to the economic problems are not politically acceptable.is not credible. but without the last-minute bailouts – Financial markets lose confidence that the eurozone's problems are solvable.except perhaps Germany.

and negotiate a controlled break-up of the eurozone . voters in Germany.Divorce • The euro zone decides break-up is the only option. – Meanwhile. – Any solution that might save the euro proves impossible to agree. Along with the southern Europeans. tax rises. the Netherlands. Finland and elsewhere are incensed by the spectacle of their tax money being used to rescue southern Europeans from the consequences of what they see as laziness and overspending. They are angry at the seeming lack of solidarity from the northern Europeans. Irish voters would block any treaty change put to them in a referendum. wage freezes and recession. Governments eventually agree this cannot continue. they want to escape the seemingly endless cycle of spending cuts. .perhaps a split into northern and southern European currencies.

Pouring Capital – Does it Work? • Provide a full guarantee for financial institution liabilities as Japan did in 1997 and the US did in 2008. • Prepare a capital injection situation in Japan write-downs Causing Deflationary scheme to prevent principalfrom last and capital crunch 3 decades for the banks to accept the capital • Make it easier .

Devaluation – Is it an option…? Devaluation – Is it an option .

Lets look at the facts .

What comes out of it? • • It will make stronger countries more stronger The weaker countries like Greece will collapse .

Railroad employees avg salary 65000 euros.• Rising wages from several decades in periphery • No immigration possible • Germany & other strong nations refuse to support • Eg. revenues generated 100 mln euros. Direct+Indirect expenses of 700 mln euros • Lower retirement age • No penalties for non-payment of taxes .

Thank You! .

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