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%.

. 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. the Greek government deficit was •Country's largest country's official industries are tourism •Misreported be 13. • Was initially able to borrow due to the lower interest rates government bonds could command.6%which is one of the estimated to the and shipping economic statistics relative to GDP.Greece • In May 2010.

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 .

Govt help for the banks rose to 32% of GDP 85 Bailout .• Irish crisis was due to the state guaranteeing the six main Irishbased banks who had financed a property bubble.

public debt creation & mismgmt of funds Portugal Credit rating given Junk status .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.

• Not affected much • Spain's government announced new austerity measures designed to further reduce the country's budget deficit.7%) and the United Kingdom (80. • Spain's public debt (60.2%).1% of GDP in 2010) is significantly lower than that of Greece (142. Ireland (96. France (81. Italy (119%).8%).2). and Germany (83.0%) . Portugal (93%).

2%).7% were still below those of Ireland (9. making it less prone to fluctuations of international credit markets . the Belgian Government financed the deficit from mainly domestic savings. • Belgium's high personal savings rate. Portugal (7%) and Spain (5.• The government deficit of 5% was relatively modest and Belgian government 10-year bond yields in November 2010 of 3.2%).

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 . 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.Cancel or delay some spending Under US law.

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

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 .

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 .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.

Massive speculative attacks .

• 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 .• As the financial crisis spread the economy of Singapore dipped into a short recession.

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. .China • RMB had been pegged to the US dollar at a ratio of 8. and relying heavily on trade with the United States.3 to the dollar • Almost all of China's foreign investment took the form of factories on the ground rather than securities.

They were then slow to reduce them. the Japanese monetary authorities were worried about inflation and so doubled interest rates. 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. However.Japan • Excess liquidity in the financial system caused an asset and stock market bubble. • Fall in house and share prices. in the last 1980s. .

. banks were encouraged to continue lending to firms. • When the crisis came. Deflation made normal demand side policies ineffective. even if on verge of bankruptcy.• The Japanese economic miracle was based on a strong degree of government intervention. • 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.

and other asset prices of several Asian countries. •More long-term consequences included reversal of the relative gains made in the boom years just preceding the crisis. stock markets. including sharp reductions in values of currencies. •The economic crisis also led to a political upheaval.IMPACTS OF THE 1997 ASIAN FINANCIAL CRISIS Consequences In Asia •Macroeconomic-level effects. . most notably culminating in the resignations of President Suharto in Indonesia and Prime Minister General Chavalit Yongchaiyudh in Thailand.

3 2.5 2380 26.2%↓ 83.5 850 CHANGE July 1998 41 14150 42 4.0%↓ 34.1 1290 40.2%↓ 37.4%↓ 39.1%↓ .Effects on the currency CURRENCY Exchange rate (per US$1) June 1997 Thai baht Indonesian rupiah Philippine peso Malaysian ringgit South Korean won 24.

9%↓ 34.3%↓ Malaysia South Korea 90 430 55 283 38.2%↓ .4%↓ 37.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.

. which in turn caused Long-Term Capital Management in the United States to collapse after losing $4. leading to economic slowdowns in developing countries in many parts of the world. which reached a low of about $11 per barrel towards the end of 1998.6 billion in 4 months. • The powerful negative shock also sharply reduced the price of oil.Consequences outside Asia • International investors were reluctant to lend to developing countries. causing a financial pinch in OPEC nations and other oil exporters. • This reduction in oil revenue contributed to the 1998 Russian financial crisis.

• The crisis appears to be forcing the private sector to increase saving rates to adjust to the excessive leverage.pdf . • Export demand collapsing even more strongly than import demand.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 tion15887_en.europa. • http://ec.

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