Background EU Crisis
• 1957 - Treaty of Rome (Germany, Belgium, Luxemnourg, Italy, France and Netherlands)
• 1979 European Monetary Union (EMU) - Exchange Rate Mechanism (ERM)
• still own currencies
• economic cycles were not in sync
• 1992 The Maastricht Treaty - introducing the Maastricht Criteria:
• Independence from their governments
• Convergence in inflation rate >> convergence in long-term interest rates (average had to be near of the group‘s best performer)
• Fiscal deficits could not exceed 3% of GDP (growth & stability pact)
• Government debt < 60% GDP
• 1999 Euro: rate of 1.16675 dollars per Euro - 11 countries: Austria, Belgium, Finland, France, Germany, ...view middle of the document...
.. „but germany and france als didn‘t manage it..“ no punishment for them...
Greece and other countries got punished by bond markets
2010: Euro fell from 1.50$ per euro to 1.20$ per euro >> euro zone used to attract foreign investments, but now bond inflows disappeared
May 2010: bailout for Greece (110 billion Euros), promises of 780 billion Euros for the entire euro zone (allowing EC and other EU member to borrow against their budgets), other countires said to put also more money in, and International Monetary Fund announced another 250 billion Euros
>> Germany and France to gain from a Greek bailout (had to lose most if Greece failed) >> banks had the most exposure to Greek debt (1.1% GDP of Germany) >> if crisis spreads exposure for Germany is much bigger 10% of GDP (Spanish & Irish banks)
>> bailouts showed affect: spreads tightend, sovereign bond market calmed down...“it seemed to work“
ECB: Secrurities Markets Programme (May 2010) interventions in the euro zone public and private debt securities to ensure depth and liquidity for dysfunctional market segments
Fall 2010: The Fed ( federal reserve system) was signaling to push up the US...