Money troubles still giving ailing world the blues

PUBLISHED : Tuesday, 26 June, 2012, 12:00am
UPDATED : Tuesday, 26 June, 2012, 12:00am


Iceland - Recovery success

REYKJAVIK - The Icelandic financial crisis from 2008 onwards is a major economic and political problem involving the collapse of the country's three major commercial banks. The banks were unable to pay their debts in The Netherlands and Britain. Unemployment tripled in a few months and 14 per cent of workers had to take a pay cut. Seven per cent had their working hours reduced. The major issue here was that the government had acted as guarantor to the banks and found itself having to cover losses. These were passed on to citizens in the form of tax.

In October 2008, the parliament passed emergency legislation allowing its Financial Supervisory Authority to take over the domestic operations of the three largest banks, thus minimising the impact of the financial crisis on the country.

The government decision to apply for membership of the EU in July 2009 has also helped to enhance the credibility of the country on international financial markets. With two years of economic growth, Iceland has been regarded as one of Europe's recovery success stories.

Ireland - Unsure to be sure

DUBLIN - Irish banks estimated a loss of Euro100 billion (HK$973 billion) in bad loans to property developers and homeowners in the 2007 property crash. In 2008, the economy collapsed and fell into recession for the first time in more than a decade.

The federal budget went from a surplus in 2007 to a deficit of 32 per cent of gross domestic product in 2010, the highest in Eurozone history. Unemployment rose to 14per cent in 2010. Many people chose to migrate. In 2011, 40,000 Irish people left the country owing to unemployment. Ireland forms the 'I' in the 'PIGS' nations - Portugal, Greece and Spain - which refers to the European countries that are in terrible financial trouble.

Britain - Not so great

LONDON - Even though Britain has its own currency, it is still part of the European Union. Forty per cent of its exports go into the euro area. The global crisis decreased Britain's GDP by 0.3 per cent in the first quarter of this year and exports dropped 8.6 per cent. To avoid relying solely on the Eurozone, Britain is now actively building trade relations with other countries to achieve more stable exports.

Greece - The G in PIGS ... and in chaos

ATHENS - Since its recession in 2008, Greece's debt-to-GDP ratio is at almost 179 per cent. This is the biggest crisis Greece has faced since the restoration of democracy in 1974. Other countries are not confident that Greece is able to repay its debt. The government tried to implement austerity measures, which resulted in public rioting. Greece has always enjoyed a high standard of living and came 22nd on The Economist's 2005 worldwide, quality-of-life index. But the country's corruption problems and poor standards of tax collection are regarded as obstacles for it to overcome the debt.

Japan - Swamped by tsunami

TOKYO - Japanese banks and consumers held less debt than their counterparts in Europe and the US. No major bank collapsed during the crisis. But Toyota, its iconic motor company, reported the first yearly losses in its history in 2008. Japan's economy depends heavily on exports, so the sagging global demand has cut those almost in half, leading the country into its first trade deficit for 30 years in 2009. The unstable global market has also ended the 'yen carry' trade, which has pushed the yen's value to the highest in a decade against the dollar. Carry trading is when currency is borrowed at a low interest rate to be leant at a higher rate. Japan's economy was hard hit by the earthquake and subsequent tsunami two years ago. To improve its economy, Japan is increasing its exports to the US.

China - Saviour and victor

BEIJING - In the European sovereign-debt crisis, China has been both the saviour and victor. Since Europe is China's major export market, the mainland suffered greatly when the demand collapsed in 2008. The government introduced a 4 trillion yuan (HK$4.87 trillion ) stimulus package for two years. To maintain export volume, China is helping the troubled nations by investing in their government bonds and infrastructure and supporting the rescue plans. Some critics have commented that China's financial help to other nations has made its position even more prominent, continuing to shift the world power from the West to the East.

Australia - Exposed to Europe

CANBERRA - Australia has not been affected by the global crisis as badly as other nations because of a number of factors, including its flexible exchange rate and independent central bank, which has cut interest rates and made other policy changes. In 2009, its unemployment rate rose slightly to 5.8 per cent because of population growth, leaving 35,000 people jobless, despite having 24,500 jobs created. Australian employers have chosen to cut working hours rather than fire employees.

Australia exports a lot of minerals and food to China, and in this way, its economy has been somewhat buffered. But Australian banks are heavily exposed to Europe, which raises concern. New security issues in the European market are also making investors uneasy.

India - Starting to buckle

NEW DELHI - India handled the financial crisis well in 2008, having a strong GDP growth at 9.3 per cent and industrial growth of more than 15per cent. Yet in 2011, its financial fundamentals were weakened by domestic woes and food prices continued to rise. Its GDP growth fell to 5.3 per cent, the lowest rate over the past few years. India's inflexible political system, slow fiscal reform, and unappealing tax reform plans, which led to a fall in foreign investment, all caused a slowdown in industrial and manufacturing sectors. In 2011, its currency (the rupee) depreciated to become one of the worst emerging currencies.

South Africa - The S in BRICS

PRETORIA - After just getting its name on the list of the top five emerging economies (with Brazil, Russia, India, and China), South Africa was hit by the financial crisis. Falling European demand led to big job losses in manufacturing. Unemployment remains high at 25.3 per cent and, while the 2010 World Cup helped to boost jobs, now that the building is over, there are many construction workers without jobs. Political in-fighting in the ruling ANC has affected business, too, with investors unsure about what new policies will affect them.

Spain - The S in PIGS

MADRID - Spain has suffered from a long-term slump in its loan and construction markets. Its credit is so bad that it is the one European country that risks being shut out of the credit markets. This means that currently it is very expensive for Spain to borrow money, and in future, it might not even be able to do that. Almost 80 per cent of Spain's population owns property, and they saw the price of that property rise by about 200 per cent in the bubble. This year's unemployment stands at 24.4 per cent, twice the Eurozone average.

Portugal - The P in PIGS

LISBON - The economy has been damaged by risky credit, public debt creation and mismanaged European funds. In 2011, Portugal received a bailout from the International Monetary Fund - an organisation that helps to look after global financial matters - and the EU worth Euro80billion. The Global Competitiveness Index of Portugal fell from 40th position out of 131 countries and territories in 2007-08 to 43rd in 2008-09. Unemployment rose from 12per cent in 2011, to 14.8 per cent this year. The number of unemployed is estimated to be one million.

Brazil - Looking East

BRASILIA - At the beginning of the crisis, the financial sector of Latin America, being a commodity exporter, was not seriously affected. But the global slowdown and declining food prices, owing to falling demand, has affected its economies badly. In 2008, the economy of Brazil shrank by 3.5per cent, leaving 700,000 people jobless. Yet by 2009, Brazil was out of recession with a 1.9 per cent GDP growth. South America has been focusing on building trust and stronger ties with new trading and investment partners in the Middle East and Asia, especially in China.

United States - To spend or not to spend

WASHINGTON - The world financial crisis began in 2007 when the US subprime mortgage industry (higher-risk home loans given to people who may struggle to make payments) collapsed. Many home owners failed to pay their mortgages, which left the banks with a lot of unpaid debt. This led to a loss in banking confidence. The US soon went into recession and many people lost their jobs. With the 2008 collapse of the Lehman Brothers bank, the financial crisis spread to Europe. At the end of 2008, US President George W Bush signed the Troubled Asset Relief Programme, under which the government bought equity from struggling banks. In 2009, US President Barack Obama proposed using US$1trillion from federal spending to rescue the country from crisis. Until now, the US economy has not fully recovered, with experts divided on whether businesses should be allowed to fail or whether the government should rescue them.