HENYEP CAPITAL MARKETS

Welcome
HENYEP CAPITAL MARKETS
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Walid Jaradat
¨  Senior Market Analyst
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EUROZONE DEBT CRISES
AND IT’S EFFECT ON
GLOBAL ECONOMY
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Outline
1. Panic about the Greek government`s ability to
repay its creditors
2. Infecting influence to the other euro-area countries`
sovereign debt
n  Greece
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Portugal
Spain
Italy
Ireland
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Outline
Greece
Sovereign-debt crisis boiled over
n  Debts too great
n  Financial panic in Europe
n  Around €213 billion-worth of
¨  Greek government bonds
n  Foreign banks` lending €164 billion
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Outline
Portugal
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Budget deficit 9.3% of GDP
Public debt 77% of GDP
Common weaknesses with Greece:
1. 
2. 
3. 
4. 
Small economy
Competitiveness
Foreign debts run up
Debt €198 billion
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Outline
Spain
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Most at risk
Dependence on foreign finance
Public debt 55.7% of GDP
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Outline
q 
Italy
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Italy – can hope to rely
on domestic savers.
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Impact Of European Debt Crisis On
U.S. And Emerging Markets Economy
An European Sovereign Debt Crisis Could at least affect the U.S
Economy In The Following Tow Respects:
1. 
1. First, the devaluation of the Euro triggered by the debt crisis
will make American exports more expensive.
ü  Euro has depreciated against US dollar by nearly 15%
ü  Government spending and exports have been the only two growth
engines of the American economy.
ü  With tepid consumer demand and very weak labor market, consumer
spending recovery is less likely to be quick and robust.
ü  One way to spur corporate spending is to sell overseas.
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Impact Of European Debt Crisis on U.S.
And Emerging Markets Economy
2.The second big worry remains with the banking sector
ü  The financial markets across the Atlantic are highly
integrated with each other and hence affect each other
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Impact Of European Debt Crisis On
U.S. And Emerging Markets Economy
ü  The worst case scenario would be if Greece, Spain or other
eurozone countries defaulted on their debt.
ü  Banks, the primary holders of sovereign debt, would face
huge losses with smaller banks collapsing.
ü  In a panic, they'd cut back on lending to each other, and
the LIBOR rate would skyrocket like it did in 2008.
ü  The European Central Bank (ECB) holds a lot of sovereign
debt, so its future would be at risk.
ü  The rippling effect of uncontrolled sovereign debt defaults
could create a recession, if not a global depression.
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Impact Of European Debt Crisis on U.S.
And Emerging Markets Economy
ü  It would also be worse than the 1998 sovereign debt crisis.
When Russia defaulted, other emerging market countries did too.
ü  This time, it's not the only emerging markets, but the developed markets
that are in danger of default also.
ü  If sovereign debt defaults were left unchecked, the resulting panic could
cause a shutdown of credit, in which even the United States might have
trouble funding its debt.
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What's the Proposed Solutions?
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1. Direct loans to banks and banking regulation.
2. Less austerity, more investment.
3. Increase competitiveness
¤  Internal devaluation
¤  Fiscal devaluation
¤  Progress
4. Address current account imbalances
5. Mobilization of credit
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Actors fueling the crisis
1. Credit rating agencies
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Moody’s
Standard & Poor’s
Fitch
2. Media
3. Speculators
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