FINANCIAL CRISIS IN

USA & EUROPE

AND ITS RIPLLING EFFECT ON GLOBAL ECONOM

GROUP MEMBERS
NAME

ROLL NO

SANTOSH GUPTA

1373

SAGAR MOJIDRA

1401

PRIYANKA RAVINDRAN

1353

ARIF KHAN

1387

ABOUT CRISIS

THE BUBBLE BURST

US witnessed Financial Crisis since 2001
The boom was led by rising housing prices
Housing prices in USA began to drop in 2006

Rising interest rate & falling housing prices led to

subprime mortgage and foreclosure.

Result : Housing bubble burst in Aug 2006.

rise in

IMPACT OF SUB PRIME CRISIS IN USA

Initial impact in march 2008, Bear Stearns was acquired by JP Morgan chase.
Sept 2008 witnessed major shakeouts in US financial Sector (LEHMAN
BROTHERS declaring bankruptcy on 15th sept 2008).
Washington Mutual closed by the US govt in largest failure of US bank.

 FEDERAL RESERVE PROVIDED EMERGENCY LOAN TO AIG ( AMMERICAN INTERNATIONAL GROUP ) WHICH WAS REPAID BY
SELLING OF AASET.
MERILL LYNCH WAS ACQUIRED BY BANK OF AMERICA IN SEPT 2008 FOR $50.
US FEDERAL RESERVE GRANTED APPROVAL TO INVESTMENT BANK GOLDMAN SACHS & MORGAN STANELY TO CONVERT
THEMSELVES

INTO

COMMERCIAL

BANK

DOMINO EFFECT IN INDIA

EUROZONE DEBT CRISIS

PORTUGAL FINANCIAL CRISIS

ABOUT CRISIS
The FINANCIAL CRISIS BEGAN IN
2008
Portuguese economy suffered deep
recession & rising unemployment
Government possessing more tax &
efforts to meet deficit reduction target.

 FISCAL DEFICIT FROM 3.1 % TO 10 %

PUBLIC DEBT DETORIATED FROM 68
% OF GDP TO 83 %

BAILOUTS

OTHER MEASURES
AVERAGE CUT OFF IS 20 %
BASELINE
CUT IN BUDGET AND RISE IN
TAXATION
PORTUGAL ESTIMATED BUDGET
DEFICIT OF 4.5 % IN 2011.

 The Facts of the Past

Reasons of Joining EU

Joined the EU in 1991

Access to a competitive market

Old Currency: The Dharma

Solidarity (Euro connection)

Population: 11.2 mil

Stability

Major Industries: Tourism & Shipping

Efficiency

 Public debt:
126.8% of GDP (2009) increased to 144% of GDP
(2010)
Inflation:
1.2% (2009) increased to 4.5% (2010)
Unemployment rate:
9.4% (2009) increased to 12% (2010)
Current Account Balance:
$34.43 billion (2009) to
$17.1 billion (2010)

MAJOR CRISIS FACTORS

Mismanagement of Funds
Inefficient Public Structure
Trade Imbalances
Govt. & Upper Class Corruption
Tax Evasion (25-30 bil. Euros)

BAILOUT
2010, Greek Govt Bonds become Junk, Can not privately finance.
on 2 May, the Eurozone countries and the International Monetary Fund (IMF) presented
a 110 billion bailout loan for Greece.
It was based around 3 key points:

Implementation of austerity measures.

Privatization of government assets worth 50bn by the end of 2015.

Structural reforms, to enhance competitiveness.

AusterityAusterity is a government method of covenants with the goal of re-stabilzing its debt deficit.
Examples:

Lowered Spending

Increased Tax

THE GREEK FINANCIAL CRISIS: THE PRESENT

Greek currently 160% of GDP, 120% by 2020 (goal)

Unemployment sitting near 30%

Wages last two years have fallen 12%

More than 1.1m jobs lost in the private sector in the past four
years

Market rigidities in Greece, including state monopolies, price-fixing

by local producers and restricted shopping hours, keep prices of
goods higher than elsewhere in the eurozone.

SOLUTIONS
What Greece implemented.
Raise taxes on fuel, tobacco, and
alcohol.
Raise the retirement age by 2 years.
Decrease government spending.
Recommendation.
Sterilization.
Decrease Unemployment.
Fix Inflation Rates.

CONCLUSION
CRISIS WONT STOP FOR A PERIOD OF TIME TILL ALL DEBT
OBLIGATION IN EUROZONE ARE NOT CLEARED.
THIS SITUATION IS BECAUSE EURO COUNTRY ARE DEPENDANT
ON EACHOTHER.
COUNTRY NOT ABLE TO REPAY DEBT THEY BORROWED FROM
THERFORE THER IS A DEBT CRISIS.
POLICY REACTION ARE MADE TO COME OUT OF DEBT CRISIS.

THANK YOU.