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The current economic crisis began in 2007. CONSEQUENCES OF THE FINANCIAL CRISIS: Deep, extensive. In the majority irreversible.

For the financial system, the crisis is: International, global, of great magnitude.

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July 2008

Financial crisis: The final

implications and real reach are still

a mystery(we cannot forecast yet) of difficult determination

which will mark a before and after.

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ORIGIN: The “subprime” mortgages:1st victim Northern Rock.

Abuse of securitized emissions (in abusive way) Linked to firms such as: Effects on Insurance companies AIG.

Fannie Mae Freddie Mac

Mortgage Backed Securities Asset Backed Securities

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February 2008 21/02/2008

July 2008 05/07/2008

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July 2008 September 2008

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September 2008 25/09/2008

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June 2009

1. Mutated and changed into an Economic crisis :

• First symptoms in 2008.

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May 2010

2. Took on a new dimension with crisis of sovereign debt. (Goverment Issues) • Sharpened during 2010.

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September 2011

3. In the year 2011 became a Eurozone

political crisis.

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FEBRUARY 2010 23/02/2010

February 2010 23/02/2010

The financial crisis: Impact on the stability and credibility of the three great world currencies: 1. Euro. • First symptoms in 2008.

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SEPTEMBER 2010 29/09/2010

September 2010 29/09/2010

2. US DOLLAR • Sharpened over 2010.

3. POUND STERLING. December 2009 23/12/2009

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The high levels of leverage and indebtedness in general have meant that the Eurozone is being besieged by an increase in uncertainty over its public debt.

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Break up or Reaffirmattion?

EURO ZONE AND BUSINESS CYCLES: A COMPARATIVE WITH US ECONOMY May 2012

26/05/2012

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So if the euro zone is more solid economically and financially than the United States, why is there an economic recovery in the United States and a recession in the euro zone, and a public-sector and private-sector financing crisis in the euro zone and not in the United States? If we look at the euro zone as a whole, we can see that: Its current-account balance situation and its public finance situation are better

than that of the United States . The weight of industry is higher in the euro zone than in the United States, and

the euro zone´s market share in global trade is markedly higher than the US market share.

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We believe this paradox, i.e. the euro zone´s poor economic and financial health, is a result of the euro zone´s institutional problems.

The euro zone´s problems stem from

its institutional problems.

Multiple sovereign issuers.

The euro zone is a currency area with:

Multiple sovereign issuers; Heterogeneous economies; Without solidarity.

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• Increase their productivity gains. 1 •Reduce wage costs and the unit wage cost. 2 • Improve the sophistication of their products and

reindustrialise. 3

The countries affected by structural problems (Spain, Italy, Greece; Ireland, Portugal and France) can (must):

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Conclusion: What should we expect now in

the euro zone if the rapid real

adjustment does not work?

We do not believe in a rapid improvement in competitiveness: It is a process that takes a long time. It is a very costly process in terms of production and jobs.

Two scenarios for the countries in question: A cooperative scenario: stimulation of European growth, extension of the

time given to these countries to carry out their adjustment, support of these countries (European Investment, ECB interventions to lower their interest rates).

A non-cooperative scenario that could be dramatic: either these countries are unable to solve their structural problems, or the euro breaks up as they use an exchange-rate devaluation to carry out their structural adjustment.

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December 2010 04/12/2010

The break-up of the euro would be a political and economic disaster: the end of european dream and the rise of populist nationalism, the return of protectionism and widespread impoverishment.

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September 2011 17/09/2011

November 2010 20/11/2010

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August 2011 17/08/2011

New economic

policy instruments to control an

excessive funding deficit.

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The sustainability of the welfare state has been on the agenda of different politicians in the more developed countries. In recent years, a fatal coincidence has occurred:

The reforms of the welfare state have come in the middle of the decisive stage in the process of the consolidation of the European unity. The financial markets, potent and globalized, provided with excellent information and using sophisticated techniques of analysis, submit the economies to continual pressure.

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January 2011 January 2012

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Keeping intact the schemes of the Welfare State devised from and for the circumstances of yesterday´s world.

The markets put in question::

The anterior welfare state can damage the criteria of efficiency and flexibility to deal with the problems posed. A growing current of economists say:

The maintenance of some competitive and flexible markets and some strictly limited safety nets are the best way to overcome the current difficulties and favour the competitiveness and dynamism of the economy (via the American economy)

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• In Europe the proposed recipes/measures to leave the current economic crisis: The flexibilization of the economy.

• In Europe there still exists a solidarity which moves away from American Individualism or the insensibility of South East Asian countries.

• There are limits that cannot be transferred without resistance to the European societies, although, each time less.

October 2011 06/10/2011

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Transformation of the welfare state must commence from:

Increased pressure of the forces of competitiveness. Profound change in the labor market as a result of competitiveness and technology. The favorable factors of maintenance of macroeconomic stability.

CONCLUSION:

Review all necessary institutions, searching for a new balance between efficiency and equity, but at the same time not to, from a poorly understood solidarity, maintain institutions capable of blinding the sources

of job creation and economic growth.

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October 2010 May 2012 12/05/2012

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The deregulation has caused problems derived from the lack of preparation of entities in certain business areas:

• Increase in costs of adaption • Corporate dispersion • Systematic risk (above all in corporate banking)

Petitions appear for new bank functions which demand greater stability and less

assumption of risk .

The bank is an active element in the Welfare. This new frame of reference requires solid and dynamic Banks.

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EURO ZONE •Monetary policy: • Affects: the cost of bank loans.

• Bank Regulation: • Less effect on the financing of the

economy. • Savings structure: • Prefer to trust savings with banks.

• Types of investment: •Maintain their wealth in liquid assets and

life insurance (70% and 60% of GDP).

•Weight of the Investment: • The bank deposits in the total of savings

is greater in the euro zone.

USA ZONE •Monetary policy: • Affects financial markets in a double

way: (Liquidity and price of assets). • Bank Regulation: •Greater effect on the financing of the

economy • Savings structure: • Prefer to trust their savings in financial

intermediaries.

• Types of investment: • Invest overall in Life insurance and

pension funds (90% of GDP) and then in stocks/shares (50% of GDP).

•Weight of the Investment: • The proportion of corporate assets is

greater in the USA zone.

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Key element: within the Euro area, not only, in the financing of the economy, but also: Promotes economic growth . Mobilizes and assigns this saving. Groups and diversifies the risk, including the risk of liquidity. Facilitates the exchange of goods and services.

The bank is one of the engines of economic prosperity.

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•They re-capitalize (Basel Banking Regulation. Basel III). 1 •Perform long term loans with long term funding (Basel III). 2 •Finance economies at the lowest possible interest rates. 3 •Provide banking services at reduced prices. 4 •Maintain assets that incorporate risk only if its performance takes into account the required

risk premium ( sometimes, even, suggest banks do not take risks at all) 5 •Continue financing countries, even when presenting alarming signs of fragility. 6 •Pay more taxes (to finance the cost of the debt crisis, part of the pension system...). 7

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The demands required by the Banks are clearly incompatible. They cannot be required to simultaneously increase their capital, lend to borrowers with elevated risk, without any risk premium, sell bank services at reduced prices and, finally, pay more taxes. Only two can present a reasonable profile:

Banks should dispose of a greater debt cushion, to make them more resistant to crisis.

Banks should charge the risk premium that corresponds to the true risk of public and private borrowers.

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Re-define the new role of the bank and ensure the sustainability of the welfare state.

The bank has in important role in the welfare state: contribute to the stability and growth of the economy.

The suitability of the welfare state to the current circumstances

All necessary institutions must be revised in order to improve efficiency and competitiveness.

There are many proposals for change because of the intensity and duration of the current financial crisis:

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