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Crash, Euro crises and welfare futures

Crash, Euro crises and welfare futures. Outline: from 2008 to 2012. Why the crash in 2007-8? On mortgages, banks and public expenditure How the disease spreads Banks and states: the PIIGS Italy and Greece Spain, Ireland (and Portugal) States and bond markets The mess we are in.

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Crash, Euro crises and welfare futures

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  1. Crash, Euro crises and welfare futures

  2. Outline: from 2008 to 2012 • Why the crash in 2007-8? • On mortgages, banks and public expenditure • How the disease spreads • Banks and states: the PIIGS • Italy and Greece • Spain, Ireland (and Portugal) • States and bond markets • The mess we are in

  3. The crash in 2008 • 1990s – 2000s: growth of derivatives markets • Bonus-based promotions of mortgage loans & debt • US / UK property bubble bursts: • Mortgage defaults • Property prices collapse / negative equity • Bank balances inadequate (run on banks) • Governments step in to forestall bank collapse • Private debt becomes public debt. • Economies contract: unemployment rises (CEE)

  4. The problem in Spain (Ireland) • Massive expansion of (& investment in) property 1990s and 2000s. Post-crash: • Abandoned development projects • Domestic banks undermined • Rising unemployment hits state revenues • Result: massive public sector deficits • Result: mass youth unemployment

  5. The problem in Greece (Italy) • Heritage of extensive government borrowing • Small Eurozone economy slips sub EconFin radar • Public expenditure used to sew together coalition parties (insider privileges & public pensions) • Problems with taxation: lost revenue, constant borrowing to shore up deficits. • Greek problems affect Cyprus

  6. The issue of the Euro • How to cure debt: • Devalue currency (impossible under Euro) • Raise interest rate (same + higher unemployment) • Renegotiate repayments (the IMF & ECB solution + ‘firewall’ of ECB guarantees) • The risk of default: the message of the bond markets

  7. The markets react: 2010

  8. Moody’s + S & P ratings for Eurozone

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