Financial Crisis III

Question 1

Start of the financial crisis in Europe

Answer 1

2007: subprime crisis in the USA –> effect on European Banks
september 2008: breakdown of Lehman Brother –> difficulties for other banks (bad loans, mistrust) –> investors reduced bank deposits

Question 2

Start of the financial crisis in Europe

Credit crunch =

Answer 2

credit crisis, reduction of availability of loans

Question 3

Start of the financial crisis in Europe

Effect on industry:

Answer 3

Effect on industry: 20% production decrease

Question 4

German strategy

Answer 4

Follow Keynesian theory:
support banks with equity, loans and guarantees
increase government spending
increase support of industry (e.g reduce working hours)

Question 5

Effects of german policy on business

Answer 5

• Banks in danger of insolvency were rescued –> trust in banks restored
• Automotive industry recovered because of car-scrap bonus
• industry in general recovered because of increased government support
• since industry kept qualified staff, recovery was easier

Question 6

France Strategy

Answer 6

Follow Keynesian theory:
Support banks with equity, loans and guarantees
Increase government spending –> positive effects on banks & business in general
Industry profited also from german car-scrap bonus

Question 7

Consequences of France and german strategy

Answer 7

no further bank insolvencies, industry recovered (rating AAA) get and far are important for backing the Euro restore fund
face between 2012-2013 downgraded

Question 8

compare the economic situation of Greece and Spain and other MS with Ger & Fra

Answer 8

• GDP growth
• Unemployment rate
• Overall government debt
• Inaction rate
• Long-term interest rates

Question 9

Economic policies EBC and IMF suggested Greece to pursue

Answer 9

2010: greece received loan commitments of IMF, ECB and EMU member countries to be able to pay interest on government debts

–> condition: greece should reduce government expenditure by 8% in 2011

reality: recession –> less revenues -> increasing government spending

Effects of loans condition:

• tax increases
• Reduction of government employment –> unemployment rises –> further recession

Question 10

Economic policies EBC and IMF suggested Greece to pursue

Second rescue package:

Answer 10

Second rescue package: 
New loans with reduced interest rates
longer term loans
Banks reduce their claims 
support for reconstruction of Creek economy by EU (support for underdeveloped regions)  
increase of leverage of Euro rescue fund

Question 11

Economic policies EBC and IMF suggested Greece to pursue

Spring 2012

Answer 11

Spring 2012: reduction of claims of private creation of 100 bn
Condition: Greece shall sell movement property and continue to reduce expenditure (increase taxes)

Greek reaction:
Reduction government expenditure
stat of privatization of state enterprises
Continuing protest because of continuing recession
Continued discussion about free fulfillment of required measures by IFM ECB EU
difficult social situation in Greece, political tension and protest