TÁC ĐỘNG của KHỦNG HOẢNG từ KHU vực KINH tế CHUNG CHÂU âu đến HOẠT ĐỘNG đầu tư và THỊ TRƯỜNG tài CHÍNH CHÂU á e

TÁC ĐỘNG CỦA KHỦNG HOẢNG TỪ KHU VỰC KINH TẾ CHUNG CHÂU ÂU
ĐẾN HOẠT ĐỘNG ĐẦU TƯ VÀ THỊ TRƯỜNG TÀI CHÍNH CHÂU Á

Impact Of Euro Crisis on Asian Financial Markets
& Investments
The European debt crisis is the shorthand term for Europe’s struggle to pay the debts it
has built up in recent decades. Five of the region’s countries – Greece, Portugal, Ireland,
Italy, and Spain – have, to varying degrees, failed to generate enough economic growth
to make their ability to pay back bondholders the guarantee it was intended to be.
The global economy has experienced slow growth since the U.S. financial crisis
of 2008- 2009, which has exposed the unsustainable fiscal policies of countries in
Europe and around the globe. Greece, which spent heartily for years and failed to
undertake fiscal reforms, was one of the first to feel the pinch of weaker growth.
When growth slows, so do tax revenues – making high budget deficits unsustainable.
The result was that the new Prime Minister George Papandreou, in late 2009, was forced
to announce that previous governments had failed to reveal the size of the nation’s
deficits. In truth, Greece’s debts were so large that they actually exceed the size of the
nation’s entire economy, and the country could no longer hide the problem.
Investors responded by demanding higher yields on Greece’s bonds, which raised
the cost of the country’s debt burden and necessitated a series of bailouts by the
European Union and European Central Bank (ECB). The markets also began driving up
bond yields in the other heavily indebted countries in the region, anticipating problems
similar to what occurred in Greece.
Europe is a currency union, but not a fiscal union. This means that if an
economy gets into severe difficulty there is no automatic transfer of resources from the

rest of Europe, (as would actually be the case in the United States). Thus, a troubled
economy also has no ability to devalue its currency and so it languishes in recession.
This recession leads to budget deficits and growing government debt.
Three scenarios for the euro zone:
1. The European project struggles on, aided and abetted by further fiscal and political

integration.
2. There is an orderly breakup of the EU whereby Portugal, Spain and Italy are
ring- fenced in some manner against the Greek contagion.
3. There is a disorderly breakup of the EU
Murenbeeld believes there is roughly a 5% likelihood of scenario 1 coming to
pass, a 40% chance that scenario 2 will occur and a 55% chance that there will be a
disorderly breakup of the euro zone.
(Martin Murenbeeld , chief economist at Dundee Wealth Economics)
Asia does a lot of trade with Europe. The European Union (the larger grouping of
twenty seven countries, to which the Euro group belongs) is the largest single economy
in the world, accounting for 27 pct of global GDP. In comparison, the US is 23 pct of
global GDP. Asia (excluding Japan and Australia, but including China and India) is 18
pct of the world economy. Asia exported $541 bln to the European Union in 2010.
Europe swallows 16 pct of Asia’s exports directly — before accounting for the intra
Asian trade that ultimately feeds European demand (for instance Korea exporting
components to Thailand which then exports a finished product to Europe).
When looking to Asia’s capital account, it is obvious that the Euro area has been
an important investor into Asia in recent years — both in financial assets and in direct
investment. With the advent of the Euro crisis, Euro area investors are keen to have their
capital in liquid assets, in Euro currency, and to take profits where they can. All three
factors suggest repatriation from Asian financial markets; that now seems to be
happening.
With financial market turmoil in the Euro area, it seems quite likely that
governments will increase financial sector regulation. Some of the policies of the past
two decades, which liberalised capital flows, may be reversed. If banks, insurers, or
pension funds are told to increase holdings of Euro bonds (for ―prudential‖ reasons)
they will be less able to invest overseas. The future flow of capital from the Euro area to
Asia will be less than it has been in the past few years. Indeed, the capital flow could be

substantially less.


Assigment
The European debt crisis is abbreviated term for Europe’s struggle to pay the
debts accured in recent decades. Five of the region’s countries in regions – Greece,
Portugal, Ireland, Italy, and Spain – with different degrees- failed to generate economic
growth to help themselves have abilities returning for owner of depenture bonds and
ensure compliance with its plans.
Thus, How did the European debt crisis begin?
Firstly, The global economy has experienced slow growth since the U.S. financial
crisis of 2008-2009, which has exposed the unsustainable fiscal policies of countries in
Europe and around the globe. Greece, which spent heartily for years and failed to
undertake fiscal reforms, was one of the first to feel the pinch of weaker growth. When
growth slows, so do tax revenues – making high budget deficits unsustainable. The result
was that the new Prime Minister George Papandreou, in late 2009, was forced to
announce that previous governments had failed to reveal the size of the nation’s deficits.
In truth, Greece’s debts were so large that they actually exceed the size of the nation’s
entire economy, and the country could no longer hide the problem.

Secondly,investors responded by demanding higher yields on Greece’s bonds, raised
public debt burden and led to requirements must have a series of bailouts of the


European Union and European Central Bank (ECB). Markets of countries in much debts
also pushd debenture bond interest rate to go to a high place when predicting problems
similar to what occurred in Greece.
Why Japan and US have not sovereign debt crisis, while their debt ratio are 230%
and 100%, respectively?

If in a single country,how to deal with regional disparity?
There are two main ways to compensate for backward region: fiscal policy transfer by
central government and migration of labor .However,in European areas,

weak

economy such as Greece can not depreciate its currency, not transfer finances from
outside and not diminish unemployment because of labor migration within Euro zone.
Nor can balance debts by issuing more currency.As a result, crisis can not escape
This problem is explained as :Europe is a currency union, but not a financial
alliance. This means that if an economy gets into severe difficulties, there is no
automatic transfer of resources from the rest of Europe, (like the case of the United
States). Thus, a troubled economy also has no ability to devalue its currency and so it
languishes in recession. This economic recession leads to budget deficits and more and
more growing government debt.
Why should Asia care about the crisis of the Eurozone
Transactions between Asia and Europe


Asia makes a lot of trade transactions with the European Union (a group of 27
countries that use the euro area) - the largest economy in the world, accounting for 27%
of global GDP. Meanwhile, the United States is 23% of global GDP. Asia (excluding
Japan and Australia, but including China and India) accounts for 18% GDP of the world
economy. Asian exports

to European Union reached 541 billion $ in 2010.Euro

accounts for 16% of direct exports of Asia- before caculating Asian internal commercial
transaction that ultimately supply for the needs of European countries (eg South Korea
exports ingredients to Thailand and then exports to Europe).

The Return to European financial market
When looking at Asia's capital account, it is easy to see that the European
common currency area is an important investor in Asia in recent years - both in terms of
financial assets and direct investment. About Euro crisis events, investors are interestd in
capital in the form of liquid assets, the euro, and take profits wherever possible, all 3
factors show a return to the financial markets in Asia, now seems to be happening.
Reversal of capital flows
With financial market crisis in the European common currency area, it seems
likely that governments strengthen regulations in the financial sector. A number of
policies about capital flows liberalization in the last two decades may change. If the
banking, insurance, or pension funds increase to hold depenture bonds by euro (for the
"cautious" reasons), they will have less abilities to invest abroad. Capital flows in the
future from European common currency area to Asia will be less than in previous years.
Indeed, capital flows may be less significantly.
Focus on domestic market
What happens to euro will affect the economy and the Asia market in next few
years. Asia must change to cope with the challenges of crisis surrounding euro currency
zone. Asia should base on the needs of domestic market and domestic capital more.

The impacts of the European debt crisis on Asian companies
 The impact of European debt crisis on Asian companies should be "managed" due
to an increase in regional trade and many dependences on regional banks.


 The first channel European common currency area is to possible impact on Asia
is that reducing demands for Asian exporting goods.However, companies
primarily based on exports to European countries are only relatively small group.
That's because a significant amount of trade

transaction in Asia are in

region.
Direct impacts from European common currency area on Asia is limited
The positives are that Asia has high reserves and low public debt and these
elements should help protect Asia, but they won’t make it immune.
Impacts on trade
How trade will be affected ? Instead ability of rising domestic market demand
instead of reducing foreign markets needs vary across the country.Hence, commercial
impacts on each country depend on:
 The size of country (or importance of exports)
 Financial ability
China has advantages in terms of size and capabilities. Singapore has a strong
financial position, but the domestic market is too small. India has large scale but
weak financial viability. Philippines has disadvantage in both scale and financial
capacity.


With 20% exporting yields to EU, both China and India will be impacted, despite
having brighter outlook for U.S., it also act on leading exporters in region including
South Korea, Thailand and Taiwan. European growth slows down (or even negative),it
leads to that exports to Europe goes down, Asian exporters will be suffered. When
European growth slows down, Chinese exports to Europe declines, Asian exports to
China goes down,as a result, Asia is suffered
Domestic consumption
On the other hand, consumption is holding up reasonably well in some countries
such as China and Indonesia, that help support activities, while, in addition, increasing
share of trade transaction and foreign direct investment of these countries are inside Asia
Some Asian companies, however, are more affected by European crisis than
others. In electronics consumption, Japanese firms such as Sony are more affected due to
economic weakness in European developed markets comparing to Korean competitors

such as Samsung focusing on developing markets. For automakers, both Japanese and
Korean companies will sufer some impacts due to slower demand from Europe. However,
Japanese carmakers are are suffering slump in the United States than in Europe.
Counterweight shift of the economy
The International Monetary Fund estimates that 70% world growth in next few
years will come from emergent markets. China and India will account for 40% of this
growth. As a consequence, emergent markets are now expected to overcome developed
economies in world GDP as early as 2014.


How does European debt crisis affect financial markets?
Contagious possibility has made European debt crisis like a significant focal
point for world financial markets in 2010-2012 period. With market turmoils in 2008
and 2009 fairly recent in memory, investors’s reaction to any bad news from Europe
took place swiftly: have sold anything risky, and bought government bonds of
contries largest and having the best finances. Typically, European bank stocks – and
European markets in particular– occured much worse than their global counterparts
during the times when the crisis was on center stage. The bond markets of affected
nations also performed poorly, as rising interest rates means that prices are falling. At the
same time, debenture bond interest rates of U.S goverment fell to lowest levels in
history in reflection of investors’ "flight to safety."

Impacts of European Union regions crisis on financial market
 A shock to stability of financial market, if Greece breaks away from Europe
zone, the shock will be even bigger
 Weaken abilities of private financial institutes
 Tighten fiscal policy of government
 There is not a real solution to solve debt crisis, the impact may last long

 Slow-down of the economy, as well as trade and investment
Why did depenture bonds revenue rise in response to this crisis and what does it
imply ?
The reason for rising depenture bond interest rate is very simple: if investors see
high risks associated with investing in a country’s depenture bonds, they will require a
higher returns to compensate for these risks. This begins a vicious cycle: demand for
higher interest rate equating to higher borrowing costs for countries in crisis, it leads to
further financial strain, that make investors demand even higher interest rate, and so
on. A general loss for investor’s confidence, typically, causes affections not only for
discussed country, but also other countries with similar weak finances – an effect
typically was called“contagion.”
Does the European confidence crisis spread to Asia?
Standard & Poor's credit analyst named Elena Okorotchenko says, "The main
channel of contagion is higher funding costs. It sates that, we don't expect the same
reduction degree for funding conditions for Asian countries." "Among Asian contries
with relatively high debt burdens, Japan, India, and Taiwan borrow mostly
domestically and are not sufferd changes in the psychology of investors as those
borrowing externally," Okorotchenko added.
Impact on the economic recovery of South East Asia
Southeast Asian economies have shown resiliences when domestic demands
increase to offset faltering exports. Indonesia, Southeast Asia’s largest economy,
expanded more than 6 percent for 6 consecutive quarters to March. Thailand’s economy
unexpectedly expanded in last quarter, while Philippine growth was the fastest since
2010.
The ongoing instability in European common currency area does not cause chain
effect in the ASEAN region due to positive growth prospects in other parts of the global
economy. According to Ranjiv Biswas, Asia-Pacific chief economist at IHS Global
Insight in Singapore,speaking at 2012 Asean Risk conference in Singapore, Biswas
knew: positive economic momentum from the US and the continuing growth of China as
well as rehabilitation of Japan from recession means that Asean region should not fear a

slowdown caused by euro area crisis


Financial impacts
 Many countries influenced by international capital flows, including bank loans
and FDI captial from Europe.
 The influential level of European deep crisis to developing countries depends
on two factors: total amount of received funds and receiving structure (FDI flow
rate / non-capital FDI flows)
How have European debt crisis affected on Vietnam?
 Difficult export
According to the General Statistics Office of Vietnam, EU is the second largest
export market of Vietnam after the United States. It consumes about 15.8% of products
produced by Vietnam in 2010. Particularly, in November, 2011, Vietnam's exports to EU
reached 16.5 billion dollars, grew relatively high with 45.4%. In 2012, forecasts that
economies in eurozone will continue to have difficulties (people's incomes decline,
inflation, rising unemployment, etc.) lead to tightened expenses trends surely.
Accordingly, goods imported into EU will be affected certainly.
In addition, EU countries also increase protection policies domestic goods, so
that Vietnam exporting goods will encounter barriers from this problem as well as
competition from other exporting countries.
 Capital and National trust decline
European public debt crisis could create two completely opposite effects on FDI
flows on global scale. Countries having the same development level with EU countries
will benefit ,because FDI capital will move from Europe to these countries when
investors want to avoid corporate income tax tending to rise in European countries.
Conversely, countries with low development levels as Vietnam do not absolutely
benefit from FDI shift out of Europe due to gaps in technology level, while capital
flows from European investment to these countries declined due to debt crisis ..
However, impact from the European debt crisis, tightened fiscal year policy, future,

forecasting FDI capital attraction continues to face many difficulties next time.
In addition, European public debt crisis has made investors and trust ranking
organizations pay more attentions to public debt problems of developing countries in the
world. 3 basic groupsto warn including :too much debt show on high public debt / GDP;


excessive spending show in budget deficit is large comparing to GDP and GDP growth
declines. In 2011, public debt accounted 54.6% of GDP, budget deficit at 4.9% of GDP,
Vietnam was evaluated by trust ranking organizations that having highest level of risk
comparing to other countries in ASEAN. This does not only affect abilities to attract
investment capital, foreign loans, but also increase borrowing costs for loans from
financial institutions in the world.
 Increasing exchange rate risk
European public debt crisis also creates unpredictable changes in exchange rates.
The euro continues to be pressurized downward on the money market in general and the
dollar in particular. Since crisis have serious signs, the euro is be debased relatively
comparing to the dollar. When the dollar raise the price relativly to the euro,it will
reduce competitiveness of Vietnam

exporting goods to EU because

majority of

exporting goods are priced by USD. In addition, the dollar strengthens while Vietnam
trade deficit will put pressure on national foreign exchange reserves.
 High interest rates, businesses loss much
Because of fear about the negative impact from the debt crisis, many central
banks in developed countries have maintained low bottom interest rate in order to
stimulate economic recovery and accepted inflation in fixed moderation. Basic rate
approaching 0% in most countries: FED(U.S.): 0.25%; ECB (EU): 1%; BOE (UK):

0.5%; Japan : 0.1%. In contrast, in Vietnam, both deposit rates and lending rates remain
high. Businesses must borrow with very high interest rates so that they must achieve
high profit rate comparing to profit rate on average equity ,it pushes firms into more
difficult situation and a lot of busineses went bankrupt.
 In addition, impacts of the European debt crisis also had an impact on other areas
of Vietnam, such as real estate, tourism ..
Do you agree: "Asian dollar may not be the right choice"?
Stem from problems that European common currency area actives inefficiently
because it bring costs higher than economic benefits for some members. The fact that
some members have suffered significant damage in recent years. A monetary union of
countries with very little in common (beyond geographic proximity and history of
invading each other). Therefore,

European common currency problems

is never


effective, going down the slope and this crisis seems inevitable, and it is challenging the
idea of a common currency for Asia.
Thus, "Asian dollar may not be the right choice" because:
 Firstly: After financial and monetary crisis in Asia (1997), the idea of a common
currency in Asia was made public. Europe took 50 years to build a common
market and a common currency, howerver, currently,it still face difficulties and is
facing huge challenges for broken. Thus, the problem is that European culture
has operated for long time and still been problematic, so, Asian dollar complex
will be to what extent? In comparison to Europe, Asia is far keep up, therefore,
the dollar in Asia is not feasible.
 Secondly: Asia's population is man times -fold Europe population. Between
countries and regions of Asia have big differences about mode,level and

development concept. National reserve is a specific of economy so having big
difference. Per capita income / GDP of Asian countries also there is a huge
difference, from a few hundred dollars / year to tens of thousands dollars / year.
Therefore, must realize that Asian dollar is not suitable in the near future and
possibly far more.
 Thirdy: Currently, political, cultural, social institution, transparency, corruption
level etc of Asian countries in the region vary greatly ,hence, the idea of dollar
currency in Asia should not be done more.
 Lastly: Currently, disputing East Sea issue, disputing islands / peninsulas in area
are very hot. These disputes not only affect the relationship between concerned
countries, but also affect interests of other countries, peace, stability, cooperation
and common economic development of region in general and world in particular.
Therefore, the Asian dollar once again is confirmed impossible to do and bring
a lot of risks for countries in Asian region in particular and world in general.
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