Category Archives: Finance

Yatırımcı: yerli mi yabancı mı?

Geçtiğimiz günlerde Borsa İstanbul’dan bir yetkilinin “kimler kazanıyor kimler kaybediyor?” başlıklı 75 dakikalık seminerini dinledim. Bu seminerde bize aktarılan araştırma davranışsal finansın bariz yansımasının, ustalıkla yapılan analizini resmediyordu.

Yerli yatırımcılar yabancı yatırımcılara göre ne kadar da sabırsızmış bu seminerde anladım. Şöyle ki bugün yerli bir yatırımcının 100 liraya satın aldığı hisse senedini, ertesi gün satması, yüksek devir hızıyla birlikte düşük getiri yada yatırımcıyı zarara sürükleyen bir davranışı doğuruyor. Bu duruma Türkiye’de o kadar sık rastlanıyormuş ki piyasadaki yatırımcılar %70 oranında kayba uğruyorlarmış. Yabancı yatırımcılar ise yüklü miktarda parayla piyasaya girip, hisse senelerini satın alıp yaklaşık olarak 58,2 hafta bekliyorlarmış.

Yerli yatırımcının yaptığı hatalar :

Az parayla birkaç hisse senedi satın almak

Hisse senetlerini hemen satıp getiri sağlamadan zarar etmek

İçeriden bilgi aldım bu hisse senedi çok değerlenecek/değer kaybedecek gibi efsanevi söylentilere inanarak hareket etmek

Yabancı yatırımcının piyasada yaptığı doğru hamleler:

Yüklü miktarda parayla piyasaya girmek

Çok sayıda hisse senedi satın almak (buradaki sayı hem hisse senedi
çeşitliliğini hem de miktarını simgeliyor. Tavsiye edilen miktar 15 hisse senediyle bir portföy oluşturmak)

Hisse senetlerini satmak için acele etmemek, BEKLEMEK

İçeriden bilgi alınma durumunun sadece kendilerine özgü olmadığını bilerek hareket etmek yabancı yatırımcının genel özellikleri arasında yer alıyor.

Yatırım yapmaya başlamadan önce, yatırım yapmanın inceliklerini kavramak gerekiyor

Be sensitive about your BUDGET!

Studying finance and economics, makes me excited and curious about theories, definitions, calculations etc.. As a student I have to know every single point about this science but instead of using them, just knowing how they are working in markets do not make sense for me. There is a really successful American girl blogging approximately every day in her web page called My Pennies My thoughts. I’m reading her posts and she is forcing me about to observe my budget and use my money “logically”. We need to know how much are we spending entire year. I’m not independent about money because still I’m living with my parents and I don’t have any idea about house expenses but she KNOWS them! I strongly recommend you to read her blog posts and “just like me” you should start to determine your cash flows every single day. Also you can use personal finance packages to observe your spendings and expenses.

Issuing New Security


Equity is sold to all interested investors in a cash offer. If the cash offer is a public one, banks are usually involved. Banks are financial intermediaries that perform a wide variety of services. In addition to taking deposits and making loans, they also aid in the sale of securities, facilitate mergers and other corporate reorganizations, act as brokers to both individual and institutional clients, and trade for their own accounts. Until late 2008 much of this activity was undertaken by investment banks. However, the financial crisis at the time resulted in investment banks either disappearing entirely or changing into normal banks.

These kind of banks are issuing securities in three ways.

1.Firm Commitment
2.Best efforts cash offer
3.Dutch auction

What is firm commitment?

A company negotiates an agreement with a bank to underwrite and distribute the new shares. A specified number of shares are bought by underwriters and sold at higher price.

What is best efforts cash offer?

Company has underwriters sell as many of the new shares as possible at the agreed-upon price. There is no guarantee concerning how much cash will be raised. Some best-efforts offerings do not use an underwriter.

What is dutch auction?

Company has underwriters auction shares to determine the highest offer price obtainable for a given number of shares to be sold.

A case study about hedging

A spanish professional football team plans to play an exhibition game in the United Kingdom next year. Assume that all expenses will be paid by the British government, and that the team will receive a check for £1million. The team anticipates that the pound will depreciate substantially by the scheduled date of the game. In addition, the football authorities must approve the deal, and approval will not occur for 3 months. How can the team hedge its position? What is there to lose by waiting three months to see if the exhibition game is approved before hedging?

The team could purchase put options on pounds in order to lock in the amount at which it could convert the 1 million pounds to dollars. The expiration date of the put option should correspond to the date in which the team would receive the 1 million pounds. If the deal is not approved, the team could let the put options expire.
If the team waits three months, option prices will have changed by then. If the pound has depreciated over this three-months period, put option with the same exercise price would command higher premiums. Therefore, the team may wish to purchase put options immediately. The team could also consider selling future contracts on pounds, but it would be obligated to exchange pounds for dollars in the future, even if the deal is not approved.

Personal Finance Packages

Research the software packages available to help entrepreneurs with the financials for a business plan. Which do you believe is the best? Why?

Present value of a firm, can attract investors if it’s have high value and a good reputation. All the time, financial managers of white shoe or new firms try to maximize profits along the company to attract investors and create consistent cash flows for the firm. The present value of a firm canbe determine by observing it’s cashflows and if we see “mismatching” between cash inflows and cash outflows, it definitely create short term financial “disaster” for the company.

To avoid our businesses from this kind of failure at the begining of a business we have to examine our financial anticipations, needs and than make decisions with considering our current situation. Starting a new business can make us excited about our new and brilliant idea. We try to create the best management & organizational plan, determining the customer segments make us crazy about the business but we cannot examine easily our economic situation and after starting a business our cash flows create deficits. To preserve our companies’ and start-up businesses we can use computer based systems and perfect softwares.

Financial software packages are display current economic situation of a business and rescue investors and most of all entrepreneurs from wrong decisions. There are too many financial packages that we can benefit from them today such as QuickBooks, Microsoft Office Small Business Accounting, Quicken Home and Business,Epicor, Oracle, Lawson, Infor, Exact Software, iCash, Fortora Fresh Finance, YNAB Pro, AceMoney…

As I stated before, for the purposes of having a healthy business plan we have to consider our financial statements. As an individual, every single person has to broadly focus on his/her expenditures and budget. For this kind of awereness, there are “personal finance software packages” and I stated their names above the page for instance: Quicken Personal Finance, iCash, Fortora Fresh Finance, YNAB Pro, AceMoney.

With a financial software we have to do our online banking transactions and investments (like purchasing stocks/bonds), preparing our plans and reports etc. For personal bases we have to do those transactions with softwares to avoid our financial transactions any lose. As an entrepreneur, instead of paying to much money to an accountant who is using financial software packages to do our businesses calculations, we can use those financial programs to determine our expenditures and make profit by investing, reporting and planning.

Having a healthy cash flow means that do not having a deficit between our actual cash receipts and our cash payments. For the purpose of having a stable cash flow or cash flow with a surplus we can use those financial packages as I stated before.

Considering the ratings in softwares we can determine that, Quicken Personal
Finance is very popular among the financial environment.

Bringing whole accounts together, Quicken Package expand our financial aweraness and it help us to maximize our profit by informing us the financial instruments etc. This package is popular and beneficial for personal based
finance and start-up businesses. New ventures face with cash flow problems and
they cannot determine transaction costs (like making an online payment with our
credit card and paying a commission to bank because of using our credit account
on that bank), having trouble because of lack of cash and do not have any
financial instruments or investments for short and long term basis. Fortora Fresh
Finance is my another favorite package other than Microsoft and Quicken..

We can easily manage Fortora Fresh Finance package without knowing too
much about software and even we can use this programme for our personal
finances such as balancing the checkbook keeping track of credit cards, bill
reminders, budget & more.. Generating reports to see where is our businesses’
money or our personal money going is easy with this package. Importing data
from a financial institutions, or quickly enter data by hand is also easy with this
software.

The user interface has an easy earning curve, and we will be up and
running in minutes by this programme. But the weak point of the Fortora Fresh
Finance Package (as you can see from the chart above) is weakness in
supporting system. Think about your start-up business. You have everything on
your financial statements but in a minute, financial market starting to have
trouble and you need a help! With respect to lack of supporting system, Fortora
Fresh cannot help you too much like Microsoft company. As a consumer we all
need products which produced or guaranteed by dependable brand, so that’s why
we have to choose Microsoft instead of untrained package producer.

To evaluate These software packages as a most beneficial and least beneficial we
have to consider the type of the business like start-up, growing or stable..

QuickBooks is a wonderful package for those companies that are expanding, have multiple employees, multiple locations or have slim profit margins.. QuickBooks offers a number of financial accounting packages including some that are business specific. For START-UP businesses Microsoft Office Small Business Accounting and Quicken Home and Business packages are ideal! Microsoft Office Small Business Accounting package is an easy product to learn and it does have add-ons such as payroll. Emailing invoices, printing mailing lists and other business communication functions are similar to other kind of Microsoft products.

Considering number of employees, we can eliminate number of packages. For instance if you have a single employee or home-based business (like trending style: Home Offices!), Quicken Home and Business is a ideal package. I stated three packages (Microsoft Office Small Business Accounting, QuickBooks and Quicken) and if I have to compare them I can say that Microsoft Office Small Business Accounting is good for small businesses but it’s similar to Quickbooks. Considering number of employees, entrepreneurs can make a decision about using them. The most important thing for a financial package is that: having a program which is “updatable”! As we know Microsoft always renew itself with respect to competition in the market and users of Microsoft products always have to make update on their products to have true and reliable informations.

References: Quicken web page, Microsoft Office web page, QuickBooks web page, Top 5 Personal Finance Packages
Article from http://smallbusiness.chron.com

Kredi Derecelendirme Kurumları

Kredi notu nedir?

Kredi notunu düzenli gelire sahip olan bilinçli tüketicinin, yatırımcının istikrarlı ödeme kabiliyetinin değeri olarak nitelendiriyorum.

Ekonomi jargonunda bu kavram şöyle açıklanıyor: bankaların net gelirinize, eğer varsa geçmişteki kredi ödeme durumunuza bakarak 400 ile 900 arasında değerlendirilen puanlama kredi notunuzu temsil eder.
Ülkelerin ve bireylerin kredi notları vardır.

Ekonomi haberlerinin yayımlandığı sayfalarda eğer bir ülkenin kredi notu düştüyse bu bir felaket gibi yansıtılırken, kişi bazlı kredi notlarının düşüşü kitlelerle sınırlandırıldığında yayımlanmaya değer nitelikte bulunur.

Bireysel olarak bankadan kredi çekmek istediğinizde bankacı sizin kredi ödeme geçmişinize göre değerlendirir. Kredilerinizi zamanında ödemişseniz talep ettiğiniz miktarı elde etmeniz konusunda sorun yaşamazsınız. Bu sizin kapitalist dünyada iyi bir öğrenci olduğunuzu, notlarınızın yüksek para akışınızın belirlenen tarihler çerçevesinde sorunsuz ilerlediğiniz yansıtır. Ancak ödemeleriniz aksaklıklara uğruyorsa, bir bankadan çekmiş olduğunuz krediyi ödemek için diğer bankadan kredi çekip kısır bir döngüye giriyorsanız, derslerinden başarısız olmuş karnesini saklaması gereken öğrencilerden olmuşsunuz demektir. Kredi notunuz yerle bir olmuştur..

Kredi notunu kimler neye göre verir?

Ülkelerin kredi notları ise Uluslararası Para Fonu, Merkez Bankası gibi kurumlardan alınan borçların zamanında ve belirlenen miktarda geri ödenmesine bağlı olarak harf notu bazında derecelendiriliyor. Standard & Poor’s, Moody’s, Fitch, A.M. Best, Baycorp Advantage, Egan-Jones, Muros, Levin&Goldstein gibi kredi derecelendirme kurumlarının ülkeleri harf notu bazındadeğerlendirmesi, gelişmişlik düzeyi, yatırım yapılabilir ülke olma potansiyeli gibi konularda kişi ve kurumlara fikir verirken iktisadi istikrarlılığın da aynası oluyor.


Kredi notunun arttırılırmasının etkileri nelerdir?

Kredi derecelendirilmesi harf bazında ülkelerin yatırım yapılabilir, riskli, spekülatif olma durumlarıyla ilgili fikir veriyor.

Örneğin:

AAA harf notuna sahip bir ülke %100 güvenilirken, AA+ harf notuna sahip bir ülke güvenilir olarak değerlendiriliyor.
B+: spekülatif iken CCC+: risk göstergesi oluyor.


Kredi notu artırılan ülkeler yatırımcıların ilgisini çekerken uluslararası çalışan şirketlerin üretim, tüketim sahası haline gelebiliyor. Gerçekleşen tüketim ülke nüfusuna daha fazla harcama yaptırıken, globalleşmenin etkilerinden biri olan birden fazla ürüne erişebilme olanağı da sağlıyor.

Bireysel kredi notları ile ülkelerin kredi notları arasında doğru orantı olduğunu düşünüyorum. Ülke nüfusunun büyük bir bölümü kredi ihtiyacı duyduğunda bankadan aldığı borçları ne kadar istikrarlı ödeyebiliyorsa ülkelerin de kredi çekme ihtiyacı ve bunu geri ödeyebilme kabiliyeti o kadar istikrarlı olabiliyor..

Yüksek Getirili Şirketler


Yatırım yapmak, bir şirket sahibinin şirketinin değerini artırmak için yapabileceği en basit ekonomik etkinlik olsa gerek. Şirket sahibi olmayanlar bile bu aktiviteyle mevcut gelirlerini ikiye katlayabilir, finansal okur-yazarlığını geliştirebilir, hedeflediği yaşam standartlarına bilinçli yatırım araçlarıyla sahip olabilir. Mademki yatırım yapmak için yüksek gelir düzeyine, şirket sahibi olmaya gerek yok öyleyse ortalama bir gelire sahip kimseler hangi şirketlerin hisselerine yatırım yaparak kazanç sağlayabilirler?

Yüksek gelir düzeyine sahip kimselerin seçtiği ilk beş şirket servetlerine servet katarken, sıradan bir gelir düzeyine sahip kimseler de bu şirketlerin hisselerine sahip olabilirler.

İlk beş şirketin başında tahmin edebileceğiniz gibi son yıllarda ürünleri hayranlıkla ve ilgiyle kullanılan Apple isimli şirket var. Steve Jobs’un vefatından sonra piyasaya sürülen İphone 5 ile bilrilikte şirketin hisseleri hızla değer kazanmaya devam ediyor. İkinci sırada, internette bir kelimeyi aramak anlamına gelen, Cambridge sözlüğüne kadar girebilen Google var. Google’ın izlemiş olduğu stratejiler öylesine güçlü ki rakipleri bugün, onun ulaşmış olduğu seviyeye yetişmek için çaba bile sarfedemez duruma geldiler..

İlk beşte üçüncü sırada yer alan şirket Microsoft. Yazılım sektöründe emin adımlarla ilerleyen şirketin başarısız olması zaten beklenemezdi. Şirketin hisseleri istikrarlı bir şekilde değerini koruyorken rakiplerine zirveyi teslim etmek istemeyen şirket her geçen gün innovasyonlar yapmaya çalışıyor.

ABD’de yaşanan hareketli seçim süreci adaylardan Barack Obama ile Cumhuriyetçi Parti başkan adayı Mitt Romney’in çekişmesi News Corporation’ın hisselerinin değer kazanmasına sebep oldu. Başkan adaylarının seçim süresince reklama önem vermesi şirketin bir sure daha yüksek gelirli kimselerin vazgeçilmez hisselerinden biri olacakmış gibi görünüyor.
İlk beşin sonunda yer alan şirket ise QualComm.. QualComm cihaz ve hizmetleri kişiselleştirerek, daha ekonomik olarak tüketicilere ulaştırmayı amaçlayan, oldukça yüksek firma değerine sahip olan bir şirket.

Managerial Economics

A manager has to make demand analysis, anticipate time value of money, detemine supply and demand levels, create a goal for his/her firm and understand the importance of profits, use his/her company’s products’ elsaticity tendencies before produce them in large quantities, maximize it’s profits and minimize production costs. A firm can be merge with another one because of profit maximization target and minimizing it’s cost. Experiences are also important factor for firms’ managers. Dividing it’s departments professionally and observing their working quality and criticizing their actions are the assignment of the manager. Studying “Industrial or Managerial Economics” we can determine basic concepts about industry and understand how to manage a firm successfully.

There are many market places exist and many industries’ try to do with others and this manner creates competitiveness. A great manager has to focus on it’s firm’s weaknesses, strenghts, opportunities in market. Focusing on this basic concepts surface others and these are explained by a Harvard Professor called Micheal Porter who is a leading authority on comapny strategy and the competitiveness of nations and regions. Mr.Porter generate a simply “The five forces framework” and we can simply understand power of buyers and input suppliers, industry rivalry, importance of types of goods and requirements to enter market. How these forces influence industry profitability is the important factor that a manager has to focus on. But the basic point of a firm is that maximize it’s profits and to do that a manager has to know “time value of money” concept. Let’s give an example about time value of money. For instance a firm make good investment and receive $10,000 cash prize from a supplier. Assume that a manager has two options, he/she can receive $10,000 now or he/she can receive $10,000 in three years. Like mmost of us, a manager as an ordinary person, he/she can receive that money today cause there is purchasing power exist right now and waiting make no sense. But using a simple formula a manager can make decision about receiving money today or in the future.

For option A, by receiving $10,000 today, you are secure to increase the future value of your money by investing and receiving interest in a period of time. For option B, the payment received in three years would be your future value. To illustrate, I have created a timeline:

Another important concepts are market forces called demand and supply. When a firm make pricing decisions it has to consider the law of demand. Law of demand states that, if a product’s price increases, the demand for that product will decreases.Of course this law is accepted when there is elasticity exist on that product. Demand is effected from consumers’ income level, price of related goods and from advertising. These three factors shift the demand curve and it change quantity demand for products.Products can be normal or inferior. Normal and inferior goods are related with income and it also effect demand concept directly. If consumers’ income increase and they still demand for a good more than before, so that good is called normal. But if consumers’ income increase and demand for particular goods decrease, these goods are called inferior.

A manager has to consider market manners, input suppliers and consumers behavior during the production process. For the explain market forces: Supply and demand, I will give an example. There is a bread producer called X who has great reputation in the industry. X company supply it’s inputs from a huge farm which produce great wheats. Because of the global warming this farm cannot produce same amount of wheat and X company cannot produce same level of bread. This situation will decrease the number of outputs and bread prices will increase fastly. Because of the high prices and with respect to law of demand, consumers will decrease their demand for X company’s breads. But in this industry the most important factor is the existence substitute of that product. If there is no bread company exist in the industry consumers have to pay the amount that X company stated.

Quantity demand analysis can explain the importance of elasticity and elasticity has three fundamental types like followings: Income elasticity, cross-price elasticity and own price elasticity. These concepts help to a manager about making pricing decisions. As I stated before, normal and inferior goods are related with income. So the income elasticity is about purchasing tendency of a good which will be normal or inferior. In my opinion cross-price elasticity is the most powerful decision making factor for a manager because it’s related with other goods and services which can be substitute of firm’s products. Own-price elasticity is represent the law of demand and if firm change current prices how will demand effect from this decision.

Using elasticity concepts a manager can increase firm’s revenue but the most important point for a firm is profits. As I stated before, a manager has to understand importance of profits. Maximizing profits and minimizing costs is the way to make a firm “valuable”. If there is high profits, the firm will have good reputation (surely sustainable profits is the basic requarment) and it will be valuable. How can a manager maximize profits? Using scarce resources efficiently and using them with less amounts is the way of maximizing profits. But as a manager we have to know that where marginal revenue is equal to marginal cost there is the profit maximization point (MR=MC).
Constructing confidence interval we can use econometrics. Making regression analysis is the assistant of a manager. Briefly explanation of an regression analysis chart can help a manager to make efficient decisions about production process or changing incentives about inputs etc.

Until now a manager benefit from being aware of time value of money, bond between market conditions and elasticity, using regression analysis to understand production process and significancy. Revenue factor effecting from elasticity concept. A manager has to know cross, own or income elasticity for focus on increasing revenue and profits.
Factors of production is the basic concept of an industry. As we learned that production function is : Y=F(K,L). Capital is fixed factor for short run but in long run, the role of these two notions will change. I will use labor factor to explain the theory of individual behavior.Indifferece curve and budget line reflect aspects of demand analysis. Indifference curve represents, how the change in the wage rate will affect the choice between leisure time and work time. The budget line represents all the possible combinations of two goods that can be purchased at given prices and for a given consumer budget. These two concepts’ graph are like the following:

How can a manager use these concepts to increase the value and production of a firm? In our book there is a great case study which explain these two concepts with simple combination. Firstly, wage determiantion process is the most important process to make efficient production. Wage motivate people and change their desire about working process. A rational manager determine wage level with a specific time period but an the price of an additional working hour have to make his/her workers more motivate because they fail leisure time to work. In our textbook the manager pay more if a worker stay more than 8 hours in the firm and every hour he/she pay him/her more than overtime period. Like supply and demand curve, indifference curve and budget line has an equilibrium point where is called consumer equilibrium. From these two curves’ and consumer equilibrium point, a manager can understand for purchasing which rate of product X does a consumer give up from product Y. These simple proportions can rearrange production process and supply of product X & Y.

The point A represents consumer equilibrium. It’s the most efficient point where indifference curve and budget line are intercept. The slope of the indifference curve is called marginal rate of substitution. As I stated that, consumers give up a specific amount of X to purchase more Y. We can say that X & Y are create a bundle and where is more X & Y exist, the consumers will choose that bundle. That’s why A is the point where consumers reach an equilibrium. MRS has an equation like the following:

MRS=Px/Py
To maximize profits a manager has to find a way to minimize costs. The production process and costs is related with average & marginal costs, economies of scale, fixed and sunk costs, time period like short run and long run. To interpreting cost factor like indifference curve and budget line we have isoquant and isocost curves. Converting inputs into output by firm is a production process and during this process a manager has to consider isoquant, isocosts, indifference curves, budget lines etc.

The slope of the isocost line is an area where there is cost minimization exist. Marginal rate of technical substitution (MRTS) has an equilibrium like marginal rate of substitution which is the slope of indifference curve.

MRTS=w/r

Using Cobb-Douglas, Leontief and Linear functions like regression line analysis we can interpret them with statistical techniques to make efficient production process decisions and minimizing costs. Algebratic forms of production functions can measure the amount of inputs and the output level. This informations have importance for manager cause production process is th ekey thing for determining manager is skillful or not. Production processis related with market structure like firms’ size, ,ndustry concentration, technology, demand and market conditions and potential for entry. Cause this factors determine the rivalry and the value of outputs.
To sum up, managerial economics gives informations to a candidate of a manager about production, market and creating a difference during in a competitive market conditions. Using algebratic forms of productivity and interpreting those informations, considering concepts that I briefly mentioned is the important point of the managerial economics. Combining capital, labor and othet input factors (wage, resource prices, advertising etc.) will be more efficinet using managerial economics’ concepts and considering marginal decisions a manager can be more rational. With respect to a principle which says that”rational people think at the margin”, a manager has to be rational and use those concepts to make prodoction process more efficient and use inputs benefically.

References:
• Foundations of Finance, 7/E
Arthur J. Keown, Virginia Polytechnic Instit. and State University
John D. Martin, Baylor University
J. William Petty, Baylor University
• Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 “Powerpoint slides”

Eurozone Crisis

European Union is an economic and political union or confederation of 27 members which are located in Europe. EU is an also monetary union but as currency based not 27 members are joint the union. A monetary union, the eurozone, using a single currency comprises 17 members. Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Spain are the members of eurozone.

During 2010-2012 period, Eurozone crisis stated in worldwide news and it’s effect on global economies. Global economies effected from Eurozone crisis because eurozone countries export many goods and services around the world and during the recession period, importers face difficulties about those goods and services which are provided from eurozone countries. Eurozone crisis erupt with Greece, which create reactions worldwide. After Greece, Spain, Italy and Ireland faced with crisis but it never effect these two countries’ economy like Greece. This crisis is about sovereign debts and it’s really hurts economies like Greece, Italy, Spain, Iceland which are not powerful as Germany, England and France. But what happended during a globalization period to Greece and other countries, which faced with great recession in their economies’? The European Sovereign debt crisis has resulted because of the many factors and I will state them with my opinions.

The European sovereign debt crisis has resulted from a combination of complex factors like followings:

1) Easy credit conditions during the 2002-2008 period that encouraged high-risk lending.
2) International trade imbalances exist.
3) Real-estate bubbles that have since “burst”!
4) Slow economic growth in 2008 and later
5) Fiscal policy ( G, T ) choices related to government revenues and expenses.
6) Approaches used by nations to bailout trouble banking industries and private sectors

The causes of the crisis begins with the great increase in savings available for investment during 2000-2007 period when the global pool of fixed income securities increased from $36 trillion in 2000 to $70 trillion by 2007. With savings people do not consume and keep economy alive. High interest rates cause saving which hurt eurozone economy. As I stated in 3rd factor of european sovereign debt crisis, real-estate bubbles that have burst, I will give an example about that. For instance, Ireland’s banks lent the money to property developers, generating a massive property bubble.

When the bubble burst, Ireland’s government and taxpayers assumed private debts. In Greece, the government increased it’s commitments to public workers in the form of huge generous pay and pension benefits. Iceland’s banking system grew and creating debts to global investors. In European Union, single country’s manner effect the others like contagion effect. There the contagion is not like the sickness but it’s like “financial contagion”. In my opinion as a union, it’s not have to be political or monetary union, every single manner that members of that union create will effect the others and at the beginning of the making being union decision, members or union makers consider this factor. Yes, in EU there is “financial contagion” exist. For instance, in October 2011 Italian borrowers owed French banks $366 billion. Should Italy be unable to finance itself but the French banking system and economky could make pressure which effect France’s creditors and so on. The “financial contagion” is not remain limited in European Union. As I stated at the beginning of my essay, many European countries export goods & services.

With respect to foreign trade and globalization, this financial contagion effect importers ( from EU ). France export goods and get $578,400 million, Italy earn $522,000 million, Belgium earn $332,000 million and Greece earn $26,640 million. But these “millions” fly away with crisis and importers also effected from EU crisis.

Eurozone leaders have agreed to a strong set of rules that will limit their governments “structural” borrowing to only 0,5% of their economies’ output each year. It will also limit their total borrowing to 3%. In 1997, they agreed the same 3% borrowing limit, when the euro was being set up. But, Italy was the worst offender about limiting it’s borrowing by 3%. It regularly broke the 3% annual borrowing limit. But actually Germany was the first big country to break the 3% rule. It’S really interesting that Germany break the rule as a big country because initially Germany present 3% borrowing limit rule but it break it fastly. About 3% limit, the table below shows us countries contribution of this “crime”.

Europe’S economic geography also effect the Eurozone crisis. Averape GDP per capita is not same even approximately around the European Union. Countries monetary policies and as Eurozone show themselves like “great economies” but the reality is not same as they stated in papers or economic reports. Europe highly centralised in terms of economic activity. For instance Western Germany, Benelux, N.E. France and S.England has high GDP but there is also “peripheries” exist. They have high poverty, high youth unemployment and we cannot expect from them huge developments in term of economic activity. An I firmly believe that Eurozone monetary policies are not fixed for periphery regions and this manner obviously cause crisis. Income distribution even more uneven at regional level. In 2002 GDP per capita in Luxembourg was 207% of EU average and in Bulgaria 29% of EU average. With these variables it’s obvious that economic, specifically GDP balance is not exist between EU countries and strong economies like Germany, France and England are damaged from poor economies like Greece, Slovakia, Ireland etc.

As I stated in complex factors of the European sovereign debt crisis, international tarde balance is the cause of crisis. Financial Times journalist Martin Wolf have stated that the root of the crisis was growing trade balances and I really agree with him. From 1999 to 2007, Germany had a considerably better public debt and fiscal ( Government and tax factor ) deficit relative to GDP than the most affected Eurozone memebers. In some period, these countries ( like Portugal, Ireland, Italy and Spain ) had negative balance of payments positions. Trade imbalance, loss of confidence, monetary policy inflexibility and rising government debt levels are the main causes of Euro-zone crisis but the basic factor is “trade imbalances”. From following table I can determine current account imbalances in EU. As we can see Germany and Netherlands have great current account imbalances in terms of EU countries.

To sum up whole variables that I stated during the paper, the worst effected country from crisis in Eurozone is Greece. It has €0.4 trillion foreign debt ( Italy: €2.8 billion, Portugal: €7.5 billion, France: €41.4 billion, U.S.: €6.2 billion, U.K.: €9.4 billion, Germany: €15.9 billion ). An economist, Zderek Kudina states that “European union only takes action after the facts. They only address a situation when it has already become a problem”. In my opinion Mr. Zderek Kudina absolutely right because a few year ago we even don’t know anything about Greece economy’s weaknesses. Europe’s finance ministers on 9 May 2010 to approve a rescue package which is worth €750 billion aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility ( FSF ). European countries nowadays make agreements or create bailouts for rescuing Eurozone but it’s too late for creating packages for weak economies. The most important point for Europe’s recovery package has to focus on “trade imbalances” and balance of payments situation in term of whole European union countries. 17 members of EU using Euro (€) currency but they don’t know anything about eachothers spendings but nowadays EU policy makers states that Greece and other critical economies ,which can collapse, have to report their transactions every three months to other members. It’s obvious that if there is 17 different fiscal policies exist, financial crisis will erupt. In my opinion for saving Eurozone countries from crisis, these 17 countries have to create a fiscal policy which can reflect the whole economic situation to eachother. Germany, England and France can understand the economic situation from those variables which are tated in new fiscal policy of weak economies. And the most interesting point is Germany’s manner. Germany as leading country, they want to limit their governments “structural” borrowing to just 0.5% of their economies’ output a year and they take a limit for 3% total borrowing but they disobey the rule. As storng economy,Germany and France cannot help other EU countries as a leader because they have high level of total debt ( stated in the graph below ).

I have an assumption about recovering Eurozone from crisis. With respect to simple GDP formula,

Y= C + G + I + (X – M) if Greece increase it’s government spending, GDP will also increases. In United States, during 1929 economic crisis for rescuing U.S. from recession govenrment increased it’S spending for instance with building new bridge. In my opinion Greece and other bad economies’ govenrments can make expenditures to make better off their economies.

As concequences fixing trade imbalance problem, creating new fiscal policy which reflect whole situation in eurozone countries and making fiscal policy choices related to government revenues and expenses are important factors for recovering Eurozone from crisis.