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EURO CRISIS & ITS IMPACT ON

GLOBAL ECONOMY

PRESENTING
BY A.RAGHUVEER

12DF014

*32 member states *17 countries adopted


the euro zone

the euro -

*3

euro zone bailouts: Ireland, Portugal

Greece,

*2 countries have received


bailouts: Italy and Spain

informal

*The

European debt crisis is the shorthand term for Europes struggle to pay the debts it has built up in recent decades. 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.

* Five of the regions countries Greece, Portugal, Ireland, Italy,

*Euro

zone crisis often referred to as European Sovereign Debt Crisis.

*Euro Currency came to existence in 1999 and in 2002 notes and


coins began to circulate.

*EU Union agreed to exactly the same 3% borrowing limit back


in 1997, when the euro was being set up.

*The "stability and growth pact" was insisted on by German


finance minister Theo Waigel.

3/9 ITALY Worst Offender

5/9 GERMANY First to Break rules

6/9 FRANCE Offender

9/9 SPAIN Top of the Class

*Germany,

France and Italy should be in trouble with all that reckless borrowing, while Spain should be reaping the rewards of its virtue.

*The

global economy has experienced slow growth since the U.S. financial crisis of 2008-2009. was the first country to feel the pinch of weaker growth. a series of bailouts by the European Union and European Central Bank (ECB).

*Greece

*Necessitated

*Big build-up of debts in Spain and Italy before 2008. *It was the private sector - companies and mortgage borrowers who were taking out loans.

*All the debt helped finance more and more imports by Spain, Italy
and even France.

*Germany became an export power-house after the euro zone was


set up in 1999.

*But debts are only part of the problem in Italy and Spain. *During the boom years, wages rose and rose in the south (and in
France).

*German unions agreed to hold their wages steady. So Italian and


Spanish workers now face a huge competitive price disadvantage.

*Spain *And

and Italy are now facing nasty recessions, because no-one wants to spend. now governments - whose borrowing has exploded since the 2008 financial crisis savaged their economies - have agreed to drastically cut their spending back as well.

CUT SPENDING
1) More unemployment , which may

DONT CUT SPENDING 1) The amount they borrow each year has exploded since 2008 due to economic stagnation and high unemployment. 2) Economy looks to be chronically uncompetitive within the euro. 3) Meanwhile, other European governments may not have enough money to bail them out.

push wages down to more competitive levels . 2) Even so, lower wages will just make people's debts even harder to repay. And 3) Lower wages may not even lead to a quick rise in exports, 4) In any case, they can probably expect more strikes and protests, and more nervousness in financial markets.

*The primary course of action has been a series of bailouts


for Europes troubled economies.

* In

spring, 2010, when the European Union and International Monetary Fund disbursed 110 billion euros to Greece. worth about $157 billion.

*Greece required a second bailout in mid-2011, this time

*On March 9, 2012, Greece and its creditors agreed to a


debt restructuring that set the stage for another round of bailout funds.

*Ireland

and Portugal also received bailouts, in November 2010 and May 2011, respectively. Financial Stability Facility (EFSF) to provide emergency lending to countries in financial difficulty.

*The Eurozone member states also created the European *The ECB announced a plan, in August 2011, to purchase
government bonds.

*In December 2011, the ECB made 489 ($639 billion)


in credit available to the regions troubled banks at ultralow rates, then followed with a second round in February 2012.

*With the market turmoil of 2008 and 2009 , investors reaction to


any bad news out of Europe was swift.

* European bank stocks and the European markets as a whole


performed much worse than their global counterparts during the times when the crisis was on center stage.

*The bond markets of the affected nations also performed poorly. *At the same time, yields on U.S. Treasuries fell to historically
low levels in a reflection of investors "flight to safety."

*Britain may be in the front line of the Euro crisis. * The Eurozone is a massive market for businesses from the
United States, China, India, Japan, Russia and the other major world economic powers.
The world is so keen to see the Euro survive even if that means it has fewer members for the following reasons.

*To preserve the Eurozones massive consumer market. *To prevent a global recession. *To protect the world financial system.

*Impact on Software Sector *Impact on Foreign Direct Investment(FDI) *Impact on Exports *Impact on Foreign Institutional Investments(FII) *Inflationary scenario *Exchange rate Depreciation could worsen the outlook

FUTURE OF EURO ZONE ?