Central Banks are the backbone of an economic system. Any fracture can create serious concerns for the financial future of the country. In recent years, there have been numerous articles raising questions about the credibility of central banks. This article focuses the basics of central banks with a strong focus on its relation with the financial crises.
Category: Financial Crises timeline
Greece Exit (GREXIT) – A Boon Or A Bane?
By the end of 2014, Greece owed “troika”(European Central Bank, the International Monetary Fund and the European Commission) €253.3bn. In 2014, many talks were doing the rounds of a possible exit of Greece from the Eurozone. With snap elections in January 2015, Greece is again put on a spot. There is a lot of speculation as to how things could change for Greece in case radical left-wing party Syriza wins. Sunday Elections for Greece could either make or break the future of Greece depending how the elected government handles rising tensions between the troubled nation and its creditors, Eurozone government and IMF.
The Biggest Banks, Bailouts & Basel III
Fed’s Stress tests for Banks – 29 Pass 1 Fail
On March 20, 2014, in the Fed’s Stress tests for Banks – 29 Passed and 1 Failed. While one bank was below par the rest seemed to have scored well. The real picture will be completed on March 26th,2014. Many raise questions on the stress test of banks. This article focuses on the basic key points of what bank stress results are and what are considered its drawbacks.
The Financial Ripple (2007 – 2013)- As It Happened
The ripple effect of the financial downturn spread across nations from 2007. The intensity of financial shock from US Subprime Mortgage Crisis was so large that it caused Europe to witness a falling economy. Through out 2009 till 2013 Eurozone has been facing a fluctuating economy causing serious concerns over rising unemployment and failure to revive the sleeping economy. In 2013, Asia Pacific faces serioius concerns with China, Japan & India falling slowly in the financial trap.The falling rupee, tumbling asian stock markets and a high food inflation are causing grave concerns over asian economies.
Economic Crises Timeline – United States & Eurozone
During the US financial crisis, many economists and countries across the globe reacted negatively to the revival of United States economy. Beginning of 2007, saw the ascent of a crisis that was one of the longest and biggest in the history of economic failures. The ripple effect of the crisis could not be measured since economists back in US were still trying to figure out why early actions had not been made and how central bank failed to predict something so big. Many articles flooded the internet mostly focussing on ‘ Sub-prime Mortgage’, ‘Securitization’ and failures of the US central banking system.
Analysts found a new topic for debate and those who had been waiting to point fingers on Wall Street and the biggies in US, finally got a chance to do so! People compared these to previous bubbles that had been burst and research students found a new PHD topic with various hypotheses!
In 2008, countries like France, Germany and a few European countries were relieved about the fact that they had not faced the music of the US meltdown and it was reaping what it had been sowing. Little did they know that such crises take a while to gain momentum and the slow poison can be damaging for their own economies. In 2008, German Finance Minister Peer Steinbrück declared the US to be the source of the crisis. In a speech to the German parliament Steinbrück declared, “The world will never be the same … the US will lose its status as the superpower of the global financial system.”
In view of the expected effects of a serious recession, the governments of Germany and France saw value in putting some distance between themselves and Wall Street. “America is experiencing a decline in its power, and the financial crisis is only one indication of this. Europe must take on more responsibility,” began a column by Joschka Fischer, the former German foreign minister in 2008. On the US financial crisis on 27th August, 2008 President Sarkozy in his UN speech mentioned that even though the main epicenters of previous financial crises were the emerging countries, the very heart of world capitalism is being hit. He focussed that everything needed to be done at the EU level to promote the growth of the European economy. He spoke of reestablishing confidence by consolidating the European financial sector by strengthening the transparency, responsibility and oversight. The aim was that the EU will make the most effective contribution to the effort that must be pursued more broadly with its partners to correct the shortcomings and deficiencies of the international financial system. This was one of the reactions by Europe after US financial system fell apart in 2008.
In 2013 , Euro had a different tale to tell. Failure of big banks, austerity packages, bailouts, crashing of stock markets and even talks of Euro zone falling apart were witnessed. Large labour unions could have saved Eurozone but unemployment rate is on the rise and making matters worse than before.The unemployment rate in Euro zone has risen from to 12.2% for April, according to Eurostat, the statistics office of the EU. At 24.4%, youth unemployment was double the wider jobless rate and up from 24.3% in March.Protesters who picketed the European Central Bank on Friday , 31st May 2013, are planning a second day of action across European cities as anger grows over austerity measures that many blame for taking eurozone unemployment to an all-time high.¹ Germany and Austria have the strongest economies in Europe by some margin, but there are structural reasons the rates are low too,” said Gary Browning, chief executive of Penna, a global human resources group. While this happens, Cyprus is waiting for a miracle to happen but the uncertainty for such a miracle makes matters worst.The impact of austerity is greater when countries in Eurozone have limited scope to offset the impact of tighter fiscal policy by cutting interest rates, and when a large number of countries are cutting back at the same time.This explains why the IMF – spurred on by an Obama regime deeply troubled by the depression in the eurozone – has been advising member governments to ease up.
Combination of recession, social unrest and political necessity is a reminder of the situations faced in United States and Germany in the early stages of Great Depression.The mistakes made in Europe has been a failure to loosen monetary policy aggressively enough and a tightening of fiscal policy during recession. The Eurozone is doing all it takes to save the single currency and in doing so this one objective can drown the various economies of the Eurozone’s member countries.The case needs to be made, and explained to the public – as economist Paul Krugman recently did for Cyprus – that years of mass unemployment are too high a price to pay for keeping the euro.
© 2013 Deena Zaidi. All rights reserved.
Banking on Thin Ice !
A bank failure leads to an economic failure and in the past many similar failures have been faced all across the world but lessons are yet to be learnt. The recession of 2007-2013 is difference from previous depressions and bank failures simply because we are more globally connected and products like currency derivatives have just made banking across the world globally connected. This article looks at the Central banking system, focuses on shadow banking and breezes through the issue of systemic risk.
Is BRICS the next EURO?
With the financial turmoil all across economies, Brazil, Russia, India, China and South Africa( popularly known as BRICS) remain the largest contributor in the world’s GDP i.e. 25% of global GDP and also 40% of the world’s population. With the recent meet in Durban, many contrast views have been expressed regarding to the aims and objectives of BRICS and whether it will be big as G7 by 2025 This article highlights a review on the same and its comparison to the Euro zone.
The Base-ics of Basel
According to the BIS, “The choice of Switzerland for the seat of the BIS was a compromise by those countries that established the BIS: Belgium, France, Germany, Italy, Japan, the United Kingdom and the United States. When consensus could not be reached on locating the Bank in London, Brussels or Amsterdam, the choice fell on Switzerland. An independent, neutral country, Switzerland offered the BIS less exposure to undue influence from any of the major powers. Within Switzerland, Basel was chosen largely because of its location, with excellent railway connections in all directions, especially important at a time when most international travel was by train.”
Britain’s ‘QUIET’ Fallout!
According to PwC’s report, UK will see a slip in its GDP’s ranking to 11th position in the world’s rankings. US, Japan, Germany, France and Italy has also been pushed down the league table but only UK and Italy lost out on the top ten slot. The same reports also predicted that China will soon overtake United States as the world’s largest economy in 2017. UK at present faces many issues that are being addressed but are they quick enough to make instant changes in the nation’s economy?