The proposed a long-term solution to the Eurozone crisis involves ways to deal with the ongoing Eurozone crisis and the risks for the governments of euro zone and euro-zone countries. They try and face the difficulty that some countries in the euro area have the experience of trying to pay back or refinance their government debt without the help of a third party. Solutions range from tighter fiscal unions, the issuance of Eurozone bonds to debt relief, each of which has both financial and political implications, meaning there is no solution that gets support from all parties involved.
Video Proposed long-term solutions for the Eurozone crisis
Background crisis
The European sovereign debt crisis results from a combination of complex factors, including financial globalization; easy credit conditions during the period 2002-2008 that encouraged high lending and lending practices; the global financial crisis 2007-2012; imbalance of international trade; an exploding real estate bubble; global recession 2008-2012; fiscal policy options related to government revenues and expenditures; and the approach used by the state to save troubled banking industry and private bond holders, assuming private debt burden or socialization losses.
One narrative explaining the causes of the crisis began with the significant increase in savings available for investment over the 2000-2007 period when the global collection of income securities continued to increase from about $ 36 trillion in 2000 to $ 70 trillion in 2007. This "Giant Pool" Money "rises as savings from high-growth developing countries enter global capital markets Investors seeking higher yields than those offered by US Treasury bonds seek alternatives globally.
The temptations offered by such available savings flood regulatory and regulatory controls and policies in countries by country, such as lenders and borrowers who use these savings to use, produce bubbles after bubble around the world. While these bubbles have exploded, causing asset prices (eg, residential and commercial property) to decline, liabilities owed to global investors remain at full price, raising questions about the solvency of governments and their banking systems.
How every European country involved in this crisis borrows and invests the money varies. For example, Irish banks lend money to property developers, resulting in a massive property bubble. When the bubble bursts, the Irish government and taxpayers assume personal debt. In Greece, the government increased its commitment to public workers in the form of massive wage and pension benefits, with the former doubling in real terms for 10 years. Iceland's banking system grew enormously, creating debt to global investors (external debt) several times the GDP.
The interconnection in the global financial system means that if one country fails to pay its debt or enters a recession causing some external private debt to be jeopardized, the creditor banking system faces a loss. For example, in October 2011, Italian borrowers owe French banks $ 366 billion (net). If Italy can not finance itself, the French banking and economic system can be under significant pressure, which in turn will affect French creditors and so on. This is called financial contagion. Another factor contributing to interconnection is the concept of debt protection. The agency signed a contract called credit default swaps (CDS) that resulted in payments should fail on certain debt instruments (including government issued bonds). However, since some CDS can be purchased on the same security, it is unclear what is exposed to each country's current banking system to CDS.
Greece hides its ever-growing debts and deceives EU officials with the help of derivatives designed by major banks. Although some financial institutions clearly benefit from growing Greek government debt in the short term, there is a long-term crisis.
Maps Proposed long-term solutions for the Eurozone crisis
Proposal
A number of different long-term proposals have been put forward by various parties to deal with the eurozone crisis, this includes;
European fiscal unity
Improved European integration which gives the central body increased control over member states' budgets proposed on June 14, 2012 by Jens Weidmann President Deutsche Bundesbank, expanding ideas first proposed by Jean-Claude Trichet, former president of the European Central Bank. Controls, including the requirement that taxes be raised or budget cuts, will be implemented only when fiscal imbalances develop. This proposal is similar to Angela Merkel's contemporary call to increase political and fiscal unity that would "allow for possible European oversight."
European banks are estimated to have lost close to EUR1 trillion between the outbreak of the financial crisis in 2007 and 2010. The European Commission approved some EUR4.5 trillion of state aid for banks between October 2008 and October 2011, an amount that includes tax recapitalization value that taxpayer funded and public guarantee of bank debt. This has prompted some economists such as Joseph Stiglitz and Paul Krugman to note that Europe does not suffer from the sovereign debt crisis but from the banking crisis.
On June 6, 2012, the European Commission adopted a legislative proposal for bank recovery and a harmonized resolution mechanism. The proposed framework establishes the necessary measures and strengths to ensure that bank failures in the EU are managed in a way that avoids financial instability. The new legislation will give member states the power to impose losses, resulting from bank failures, on the bondholders to minimize the costs for taxpayers. This proposal is part of a new scheme in which banks will be forced to "rescue" their creditors whenever they fail, its basic purpose is to prevent future taxpayer-funded bailouts. Public authorities will also be given the power to replace the management team at the bank even before the creditor fails. Each agency is also required to set aside at least one percent of the deposits covered by their national security for special funds to finance the completion of the banking crisis beginning in 2018.
Eurobonds
More and more investors and economists say Eurobond will be the best way to resolve the debt crisis, although the introduction of those matched with tight financial and budgetary coordination may require a change in the EU agreement. On 21 November 2011, the European Commission suggested that eurobond issued jointly by 17 euro countries would be an effective way to overcome the financial crisis. Using the term "stability bond", Jose Manuel Barroso insisted that such a plan should be matched by fiscal tight supervision and coordination of economic policy as an important partner to avoid moral dangers and ensure sustainable public finance.
Germany remains largely opposed at least in the short term to a collective takeover of sovereign debt in countries that have suffered excessive budget deficits and borrowed excessively over the past few years, saying this could substantially increase state obligations.
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On October 20, 2011, the Austrian Institute of Economic Research published an article suggesting converting the EFSF into the European Monetary Fund (EMF), which could give the government a fixed interest rate of Eurobonds at a rate slightly below medium-term economic growth (in nominal terms). These bonds can not be traded but can be held by investors with EMF and disbursed at any time. Given the support of all eurozone and ECB countries "EMU will achieve the same strong position vis-a-vis financial investors as the US where the Fed supports unlimited government bonds." To ensure fiscal discipline despite the lack of market pressure, EMF will operate in strict order, providing funds only to countries that meet fiscal and macroeconomic criteria. Governments that do not have good financial policies will be forced to rely on traditional (national) government bonds at less favorable market levels.
The econometric analysis shows that "If the short-term and long-term interest rates in the euro area stabilize at 1.5% and 3%, respectively, the aggregate output (GDP) in the euro area will be 5 percentage points above the baseline by 2015 ". At the same time, the level of the country's debt will be much lower by, for example, the Greek debt rate falling below 110% of GDP, more than 40 percentage points below the baseline scenario with market-based interest rates. In addition, banks are no longer able to take advantage of intermediary profits by borrowing from the ECB at low interest rates and investing in high-interest government bonds.
Elimination of drastic debts financed by property tax
According to the Bank for International Settlements, the combined private and public debt of 18 OECD countries nearly quadrupled between 1980 and 2010, and will likely continue to grow, reaching between 250% (for Italy) and about 600% (for Japan) by 2040 A BIS study released in June 2012 warned that the most advanced economic budget, excluding interest payments, "would require 20 consecutive years of surplus exceeding 2 percent of gross domestic product - from now on - only to bring the debt-to-GDP ratio back to levels before the crisis ". The same authors found in a previous study that an increase in the financial burden imposed by an aging population and lower growth makes it unlikely that the indebted economy can grow out of their debt problems if only one of the following three conditions is met:
- government debt of more than 80 to 100 percent of GDP;
- non-financial corporate debt of more than 90 percent;
- private household debt is over 85 percent of GDP.
The first condition, suggested by influential papers written by Kenneth Rogoff & amp; Carmen Reinhart has been disputed for a major calculation error. In fact, the average GDP growth in the public debt/GDP ratio of over 90 percent is not much different from when the debt/GDP ratio is lower.
The Boston Consulting Group (BCG) adds the original finding that if overall debt burdens continue to grow faster than the economy, then large-scale debt restructuring becomes unavoidable. To prevent a fierce upward debt spiral from momentum, the authors are urging policymakers to "act quickly and decisively" and aim for overall debt levels well below 180 percent for the private and government sectors. This figure is based on the assumption that governments, non-financial companies and private households can each maintain a debt burden of 60 percent of GDP, at 5 percent and a nominal growth rate of 3 percent per year. Lower interest rates and/or higher growth will help reduce the debt burden further.
To achieve sustainable levels, the Euro Zone should reduce the overall debt level by EUR6.1 trillion. According to BCG, this can be financed by a one-time wealth tax between 11 and 30 percent for most countries, regardless of crisis countries (especially Ireland) where tax abolition must be much higher. The authors acknowledge that such programs would be "drastic", "unpopular" and "require broad political and leadership co-ordination" but they maintain that the longer the central bank's politicians and central bankers wait, the more such a step is required.
Instead of a one-off write-off, German economist Harald Spehl has called for a 30-year debt reduction plan, similar to that used by Germany after World War II to share the burden of reconstruction and development. Similar calls have been made by political parties in Germany including the Green and Left Party.
See also
- commodity boom of the 2000s
- The global financial crisis 2007-2012
- 2008-2012 Iceland's financial crisis
- 2008-2012 global recession
- The crisis and protest situation in Europe since 2000
- European government debt crisis: List of acronyms
- European government debt crisis: List of protagonists
- Federal Reserve Economic Data FRED
- The final recession of 2000 in Europe
- List of countries by credit rating
- Liikanen reports
References
External links
- The EU Crisis Guide by the Transnational Institute in English (2012) - Italy (2012) - Spain (2011)
- Dahrendorf Symposium 2011 - Changing Debates in Europe - Moving Beyond Conventional Wisdom
- Dahrendorf Symposium Blog 2011
- Eurostat - Statistics Explained: The structure of government debt (data October 2011)
- Interactive Debt Crisis Map Economist Magazine , 9 February 2011
- The European Debt Crisis New York Times page topics are updated daily.
- Track the pages of the European Debt crisis New York Times , with the latest headings by country (France, Germany, Greece, Italy, Portugal, Spain).
- Map of European Debt New York Times December 20, 2010
- Budget deficit from 2007 to 2015 Economist Intelligence Unit March 30, 2011
- Protest in Greece as Response to Heavy Measurement Measures in the European Union, IMF Bailout Fund - a video report by Democracy Now!
- The Diagram of the Debt Position of European Countries New York Times 1 May 2010
- Argentina: Life After Default Sand and Color 2 August 2010
- Google - public data: Government Debt in Europe
- Stefan Collignon: Democratic Requirements for European Economic Governments Friedrich-Ebert-Stiftung, December 2010 (PDF 625 KB)
- Nick Malkoutzis: Greece - A Year in the Friedrich-Ebert-Stiftung Crisis, June 2011
- Kuliabin A. Semine S. Some aspects of national economic evolution of the country in the system of international economic order.- USSR ACADEMY OF SCIENCES EAST FUNDAMENTAL ECONOMIC & ECONOMIC INSTITUTIONS INTERNATIONAL NATIONAL STUDY OF Vladivostok, 1991
- Rainer Lenz: Crisis in Eurozone Friedrich-Ebert-Stiftung, June 2011
- Wolf, Martin, "Creditors can be upset but they need a debtor", Financial Times , November 1, 2011 7:27 pm.
- More Pain, No Gain for Greece: Does Euro Fulfill the Cost of Pro-Cyclic Fiscal Policy and Internal Devaluation? Center for Economic and Policy Research, February 2012
- "Liquidity is just buying time" - Where are European experts for a long-term and holistic approach? Interview with Liu Olin: Euro Crisis. A Chinese Economist's View. (03/2012)
- Michael Lewis-How the Financial Crisis Created a Third New World-October 2011 NPR, Oct 2011
- This American life - NPR Continental Breakup, January 2012
- Global Financial Stability Report of International Monetary Fund, April 2012
- OECD Economic Prospects-May 2012
- "Letting the Euro: A Practical Guide" by Roger Bootle, winner of the 2012 Wolfson Economic Prize
- "Solving the Impasse: The Way Out of Crisis"
- Euro Zone Crisis - Can Growth Foster Difficulty? EMEA World Bank Chief Economist, Indermit Gil, on potential consequences, CFO Insight Magazine, July 2012
Source of the article : Wikipedia
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