EURO ZONE DEBT CRISIS

RGCMS MMS II Year - Finance

Group Members
Prafful P Bhalerao
Rahul H Kadam Atul P Mumbarkar Nimesh S Sawant

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Atul P Mumbarkar

Euro Zone
It is an economic and monetary union (EMU) of 17 European
Union (EU) member states

They have adopted the euro as their sole trading currency.

Euro became a reality on Jan 1, 1998 , but came for the

European consumers on Jan 1 2002.

Euro Zone
It currently consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.

Other EU states except for the United Kingdom and Denmark are obliged to join once they meet the criteria to do so.

Introduction to Euro Zone crisis

This is also known as Euro zone sovereign debt crisis

The term indicates the financial woes caused due to

overspending by come European countries

When a nation lives beyond its means by borrowing heavily and spending freely, there comes a point when it cannot manage its financial situation.

Introduction to Euro Zone crisis

When that country faces insolvency.

Insolvency: when it is unable to repay its debts and lenders start demanding higher interest rates, the cornered nation begins to get swallowed up by what is known as the Sovereign Debt Crisis.

It is the biggest challenge Europe has faced since 1990

Introduction to Euro Zone crisis

Due to global financial crisis that began in 2007-08 the euro zone entered its first official recession in third quarter of 2008.

On 11 Oct 2008, a summit was held in Paris by the Euro group heads of state and Govt. , to define a joint action plan

for euro zone and central banks of Europe to stabilize the

economy.

Prafful P Bhalerao

Beginning of Crisis
Started in Oct 2009 in Greece
Its immediate causes lie with the US crisis of 2007-09. The result in Euro Zone was Sovereign debt crisis. PIIGS: Portugal, Italy, Ireland, Greece, Spain.

What Happened and Why?

Greece: Sharp Budget Deficit
Large government and External Debts in PIIGS. Greece credit rating downgraded. Interest rates surged on government bonds. Need for external aid from EU and IMF

The high debts and rising rate of interests was a matter of

concern.

What Happened and Why?

Reasons for rise in External Debts
High household indebtness. Large current account deficit: Excessive growth in domestic demand. Increase in wage rates.

Lower exchange rate risk.

Weakening export competitiveness.

What Happened and Why?

Reasons for rise in Internal Debts:

Rising Unemployment Lower tax returns higher budget deficits.

Rahul H Kadam

Brief History
The EDC began in 2008 with the crash of Icelands banking system, which spread to Greece.

Greece had experienced corruption and spending as its

government continued borrowing money despite not being able to produce sufficient income through work and goods.

Brief History

It was admitted that Greece's debts had reached 300bn euros, the highest in modern history

Spain, Portugal, and the other nations later followed Greece.

Euro Zone Debt Crisis

COUNTRIES STATISTICS
Debt/G.D.P: 81.7% Unemployment. Oct 2011: 9.8% S&P Rating: AAA Debt/G.D.P: 83.2% Unemployment. Oct 2011: 5.5% S&P Rating: AAA Debt/G.D.P: 142.8% Unemployment. July 2011: 18.3% S&P Rating: CC Debt/G.D.P: 119% Unemployment. Oct 2011: 8.5% S&P Rating: A Debt/G.D.P: 93% Unemployment. Oct 2011: 12.9% S&P Rating: BBBDebt/G.D.P: 60.1% Unemployment. Oct 2011: 22.8% S&P Rating: AA

The main European countries affected in the European Debt Crisis are as follows:

France Germany

Greece

Italy Portugal Spain

PRESENT SITUATION

Nimesh S Sawant

GREEK DEBT CRISIS

In the first quarter of 2010, the national debt of Greece was put at 300 billion ($413.6 billion), which is bigger than the country's economy.

Greece has the worst combination of high debt level, large budget deficit and large external debt.

GREEK DEBT CRISIS

GDP - $360 billion
Debt-GDP ratio 113% of GDP Budget Deficit 12.9% of GDP Current Account Deficit- 11.0% of GDP Net Foreign Debt 70% of GDP Total Outstanding Public Debt- 290 billion euro

Latest Developments
GREECE

October 4 2009-With the new president, Papandreou

November 5 2009-Greece reveals that their budget deficit is 1207 percent of GDP

March 3 2010- Greece tries to persuade the financial

market that they can repay their debts

Latest Developments
GREECE April 23 2010- Papandreou asks help from International Monetary Fund after Greece is priced out of the international bond markets.

May 2 2010- European finance ministers lend 110bn

which covers until 2013. Greece pledges to bring its

budget deficit into line, through unprecedented budget cuts.

IMPACT
Contagion Effect
Greek crisis has made investors nervous about lending money to governments through buying government bonds.

Reduced wealth:
Take-home pay is likely to fall as it is eroded by rising taxes.

Resolutions
European governments and the International Monetary
Fund (IMF) have stunned global stock markets with a 750bn-euro.

France agreed to pitch in with 17 billion euro.

Effect on India
Indias exports to Europe could witness a slump close to 10%. Export driven sectors such as textiles and software are likely to bear the brunt.

About 22-28 percent of revenues of Indias top tech majors

come from Europe whose revenues will definitely be affected.

Governments overall target of $200 billion for the fiscal could

be at stake.

Lessons Learnt
Countries affected must:
Grind down Wages Raise Productivity Slash Spending Raise taxes

Transparent Banking system

Endure such Austerity Drives for many years

CONCLUSION
The US crisis led to Global financial crisis, which further
spread to Euro zone and caused Euro zone crisis, as these countries were most affected.

Hence the Big Brothers should help the countries in problem

to come out from the crisis.

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