“the Breakup of the Eurozone Is Inevitable Within the Next Five Years.” Discuss.
FIN30030 International Financial Management
Group Assignment: “The breakup of the Eurozone is inevitable within the next five years.” Discuss.
Contents
Executive Summary
Background
No alternative
The Greek Problem
Contagion
The Firewall/European Financial Stability Facility (EFSF)
China
Conclusion
References
Appendices
1. Executive Summary
This report addresses the question of whether or not the breakup of the eurozone is inevitable within the next 5 years.
When the U.S. property market collapsed and systemically important securities dropped sharply in value, a global financial crisis was triggered and the eurozone entered into recession. Greece in particular suffered from a fall in GDP and an increased deficit. As its cost of capital in the bond markets increased, contagion spread to other peripheral member states such as Ireland and Portugal. All three of these countries required intervention from the European Union/International Monetary Fund.
Some commentators have mooted greater Eurozone fiscal union as a potential long-term solution to the currency area’s difficulties.
We affirm that the Eurozone will not break up within the next five years; not because we believe it to be financially sound, but because there is sufficient political will to keep it intact. It is strongly asserted in political circles that a breakup would have catastrophic effects, much more costly than the price of bailouts and recapitalisations.
Greece has been the most trouble Euro country, with astronomically high yields on its government debt and widespread civil unrest. A 50% ‘voluntary’ writedown on sovereign debt ownded by private creditors has been agreed, as has a second EU-IMF bailout. Severe austerity conditions will be attached to this, and even should there be strict adherence to these, uncertainty remains as to whether Greece will remain in the Eurozone in the long run.
Many European banks carry high exposure to
Group Assignment: “The breakup of the Eurozone is inevitable within the next five years.” Discuss.
Contents
Executive Summary
Background
No alternative
The Greek Problem
Contagion
The Firewall/European Financial Stability Facility (EFSF)
China
Conclusion
References
Appendices
1. Executive Summary
This report addresses the question of whether or not the breakup of the eurozone is inevitable within the next 5 years.
When the U.S. property market collapsed and systemically important securities dropped sharply in value, a global financial crisis was triggered and the eurozone entered into recession. Greece in particular suffered from a fall in GDP and an increased deficit. As its cost of capital in the bond markets increased, contagion spread to other peripheral member states such as Ireland and Portugal. All three of these countries required intervention from the European Union/International Monetary Fund.
Some commentators have mooted greater Eurozone fiscal union as a potential long-term solution to the currency area’s difficulties.
We affirm that the Eurozone will not break up within the next five years; not because we believe it to be financially sound, but because there is sufficient political will to keep it intact. It is strongly asserted in political circles that a breakup would have catastrophic effects, much more costly than the price of bailouts and recapitalisations.
Greece has been the most trouble Euro country, with astronomically high yields on its government debt and widespread civil unrest. A 50% ‘voluntary’ writedown on sovereign debt ownded by private creditors has been agreed, as has a second EU-IMF bailout. Severe austerity conditions will be attached to this, and even should there be strict adherence to these, uncertainty remains as to whether Greece will remain in the Eurozone in the long run.
Many European banks carry high exposure to