Sovereing debt crisis, Apuntes de Administración de Empresas

¡Descarga Sovereing debt crisis y más Apuntes en PDF de Administración de Empresas solo en Docsity! Topic 6. The European sovereing-debt crisis. Hector Sala, Spanish Economy, 2012-2013, Topic 6 Plan: 1. Core and Periphery: a debt crisis? 2. The roots of the crisis: growing external imbalances 3. Political responses 4. Deleveraging and the debate austerity vs. growth 1 6.1. Core and periphery: a debt crisis only? (I) Hector Sala, Spanish Economy, 2012-2013, Topic 6 Government debts in 2007 and 2011: Source: Eurostat. Is the debt crisis a consequence of the lack of real convergence? Is this crisis more than a debt crisis? 24,8 107,4 64,2 103,1 45,3 60,2 68,3 35,2 81,2 108,2 165,3 68,5 85,8 120,1 65,2 72,2 107,8 48,6 36,3 65,2 0,0 20,0 40,0 60,0 80,0 100,0 120,0 140,0 160,0 180,0 Germany Ireland Greece Spain France Italy Netherlands Austria Portugal Finland 2 Net exports as % of GDP, 1999-2011, France and Italy: 6.2. The roots of the crisis: growing imbalances (III) Hector Sala, Spanish Economy, 2012-2013, Topic 6 5 -3,0 -2,0 -1,0 0,0 1,0 2,0 3,0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 France Italy Net exports as % of GDP, 1999-2011, Ireland and Finland: 6.2. The roots of the crisis: growing imbalances (IV) Hector Sala, Spanish Economy, 2012-2013, Topic 6 6 -5,0 0,0 5,0 10,0 15,0 20,0 25,0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Ireland Finland Public surplus/deficit as % of GDP, 1999-2011, periphery: 6.2. The roots of the crisis: growing imbalances (V) Hector Sala, Spanish Economy, 2012-2013, Topic 6 7 -18,0 -16,0 -14,0 -12,0 -10,0 -8,0 -6,0 -4,0 -2,0 0,0 2,0 4,0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Spain Greece Portugal Public surplus/deficit as % of GDP, 1999-2011, Ireland and Finland: 6.2. The roots of the crisis: growing imbalances (VIII) Hector Sala, Spanish Economy, 2012-2013, Topic 6 10 -35,0 -30,0 -25,0 -20,0 -15,0 -10,0 -5,0 0,0 5,0 10,0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Ireland Finland 6.2. The roots of the crisis: growing imbalances (IX) Hector Sala, Spanish Economy, 2012-2013, Topic 6 11 The “sovereign-debt crisis” adds to the financial and real economic crisis at the end of 2009 when… • Greece acknowledges data falsification (on the public sector deficit/debt ). • Developments in Greece at the end of 2009: • November 30: the ECOFIN expresses concerns about the Greek debt, and the Greek prime minister states that the ‘Greek economy is in intensive care’. • December 8: Fitch downgrades Greece’s credit rating from A- to BBB+. • December 14: the government announces measures aiming to cut the budget deficit by 4pp within a year; this triggers massive strikes and demonstrations. • December 16: S&P downgrades Greece from A- to BBB-. • December 19: the spread between the Greek and German 10-year bonds raises to an 8-month high, at 2.72%. • December 22: following the Fitch and the S&P Moody’s downgrades Greece from A1 to A2. • And so on, so forth, until today…on a downward trend… 6.2. The roots of the crisis: growing imbalances (X) Hector Sala, Spanish Economy, 2012-2013, Topic 6 12 • Subsequently, unconfidence and uncertainty extend to the secondary debt markets. • This causes severe difficulties in debt (re)financing and extends the problem to: • Ireland (whose financial system is caught in the housing bubble burst through its main bank, which will be nationalised). • Portugal (with rapidly growing public debt). • Italy (with already high public debt levels in 2007 of more than 100%). • Spain (with very high levels of private indebtedness and rapidly growing public debt). • The extension of the Greek problem to the whole Eurozone periphery causes a radical change in the policy approach to the crisis (since 2010): from “Keynesianism” to “austerity”. 6.3. Political responses (VII) Hector Sala, Spanish Economy, 2012-2013, Topic 6 15 DEVELOPMENTS IN THE EUROZONE IN 2010-2012: 1. May 2010: Eurogroup and IMF approve the first rescue package of Greece, of respectively, €80 bn and €30 bn loans (110.000 M €.) (Not EFSF: bilateral commitment by the Eurozone countries) 2. May 2010: The EU reaches an agreement for the creation of a European Financial Stability Facility (EFSF) to “safeguard financial stability in Europe by providing financial assistance to eurozone states”, with a firepower of € 440 bn. This can be combined with a loans up to €60 billion from the European Financial Stabilisation Mechanism (EFSM), which relies on funds raised by the European Commission using the EU budget as collateral), and up to €250 billion from the IMF to obtain a financial safety net up to €750 billion. 3. Nov. 2010: Ireland is rescued: up to 85.000 M €. 4. April 2011: Portugal is rescued: up to 78.000 M €. 5. July 2011: The capital guarantee of the EFSF is increased from € 440 bn to € 780 bn. 6.3. Political responses (VIII) Hector Sala, Spanish Economy, 2012-2013, Topic 6 16 5. July 2011: Second rescue package for Greece 160.000 M €. 6. Summer 11’: Growing doubts on Spain and Italy The ECB buys, among others, Spanish and Italian bonds; 7. Oct. 2011: The EFSM is augmented from € 780 bn to € 1 trillion. 8. Dec. 2011: The ECB pumps € 489 bn (unconditional 3-year bonds at 1%) 9. Feb. 2012: The ECB pumps € 530 bn (unconditional 3-year bonds at 1%) (These injections go to Eurozone banks in difficulties through the Long-Term Refinancing Operations LTROs: a low interest rate funding with sovereign debt as collateral on the loans) Twofold objective: (i) Greater bank liquidity; (ii) Lower sovereign debt yields. 6.3. Political responses (IX) Hector Sala, Spanish Economy, 2012-2013, Topic 6 17 10.Sept. 2012: The European Stability Mechanism (ESM) substitutes the two existing temporary EU funding programmes –the EFSF and the EFSM–. It is an international organisation located in Luxembourg with a permanent maximum lending capacity of €500 billion. ESM member states can apply for an ESM bailout if being in financial difficulty or having a financial sector constituting a stability threat if not being recapitalized. ESM bailouts will are conditional that the member state first sign a Memorandum of Understanding (MoU), outlining a programme for the needed reforms or fiscal consolidation to be implemented, in order to restore the financial stability. When applying for ESM support, the country in concern will be analyzed and evaluated on all relevant financial stability matters, by the so-called Troika (European Commission + ECB + IMF), in order to decide if one, or several, of 5 different kind of support programmes should be offered. These five different programmes are the following: Spread (monthly, basis points), 2008-2012: 6.3. Political responses (XII) Hector Sala, Spanish Economy, 2012-2013, Topic 6 20 0,0 100,0 200,0 300,0 400,0 500,0 600,0 20 08 M0 1 20 08 M0 3 20 08 M0 5 20 08 M0 7 20 08 M0 9 20 08 M1 1 20 09 M0 1 20 09 M0 3 20 09 M0 5 20 09 M0 7 20 09 M0 9 20 09 M1 1 20 10 M0 1 20 10 M0 3 20 10 M0 5 20 10 M0 7 20 10 M0 9 20 10 M1 1 20 11 M0 1 20 11 M0 3 20 11 M0 5 20 11 M0 7 20 11 M0 9 20 11 M1 1 20 12 M0 1 20 12 M0 3 20 12 M0 5 20 12 M0 7 Spread Ibex35 versus spread, 2008-2012: 6.3. Political responses (XIII) Hector Sala, Spanish Economy, 2012-2013, Topic 6 21 6.000 7.000 8.000 9.000 10.000 11.000 12.000 13.000 14.000 20 08 M0 1 20 08 M0 3 20 08 M0 5 20 08 M0 7 20 08 M0 9 20 08 M1 1 20 09 M0 1 20 09 M0 3 20 09 M0 5 20 09 M0 7 20 09 M0 9 20 09 M1 1 20 10 M0 1 20 10 M0 3 20 10 M0 5 20 10 M0 7 20 10 M0 9 20 10 M1 1 20 11 M0 1 20 11 M0 3 20 11 M0 5 20 11 M0 7 20 11 M0 9 20 11 M1 1 20 12 M0 1 20 12 M0 3 20 12 M0 5 20 12 M0 7 0 100 200 300 400 500 600 Ibex35 Spread 6.4. Deleveraging and the debate austerity vs. growth (I) Hector Sala, Spanish Economy, 2012-2013, Topic 6 22 Deleveraging: - The Eurozone priphery is highly indebted (also many other countries). - Spain’s net borrowing is virtually down to 0 in 2012 from -9.6% of GDP in 2007. - Implication I: the situation does not deteriorate anymore. - Implication II: a new era of deleveraging starts from 2013. This will harm growth for years…