International political economy

Marlen Belgibayev

Contents
1. Why European financial crisis happened? 2. What European countries have been doing? 1) Short-term measures 2) Proposed long term solutions 3) Recent emergency measures

1. Why European financial crisis happened?

1) Using a unified currency in different level of development contradiction in enforcing measures to ECs (maintaining of price stability)

1. Why European financial crisis happened?

2) Moral hazard of countries

some countries have an expectation for bail-out

PIIGS no capability to pay back!

2. What European countries have been doing? - Short-term measures

European Financial Stability Facility (EFSF)

2. What European countries have been doing? - Short-term measures: European Financial Stability Facility (EFSF)

Can issue bonds or other debt instruments Raise the funds needed to provide loans to euro zone countries in financial troubles Recapitalize banks Buy sovereign debt

2. What European countries have done? - Proposed long-term solutions

European Stability Mechanism Suggestion to create the European Monetary Fund (EMF)

2. What European countries have been doing? - Proposed long-term solutions: The European Stability Mechanism (ESM)

Bail-out mechanism such as the ESM, together with the IMF would bailout EU states in trouble

2. What European countries have been doing? - Proposed long-term solutions : Suggestion to create the European Monetary Fund (EMF)

Reinforcing economic co-operation and surveillance within the eurozone, including the establishment of the EMF

Setting up the rules and tools to prevent an recurrence of instability in the eurozone stemming from the indebtedness of a single member state, such as Greece

The fund would have resources to lend to eurozone member states in financial difficulty, but only subject to very strict conditions

3. Some proposals
Increasing IMF resources

- RMB as one of the SDR baskets

Boost their domestic demand

3. Some proposals
Boost their domestic demand

Countries facing trade surplus Effective demand & international aggregate demand To fulfill international aggregate supply

3. Some proposals
RMB as one of the SDR baskets

Current baskets of SDR

US

UK

Germany

France

Japan

3) Recent emergency measures:

European Fiscal Compact Role of ECB (European Central Bank)

3) Recent emergency measures: European Fiscal Compact

Balanced budget amendment
Greater integration of EU

3) Recent emergency measures: Role of ECB (European Central Bank)

Unlimited" bond-buying programme Purchasing any amounts of sovereign debt with a term of up to three years

Conclusion
EU have been trying to solve the crisis independently Contradictions and clash of interests Weak policy coordination

Q&A

Thank you for attention !