European Union (EU) is an economic and political union of 27 member states which are located primarily in Europe.

EU Generates 21% of the world GDP The Treaty of Maastricht is formally known as the Treaty of European Union (TEU) It was signed on 7th Feb,1992 & was enforced on 1st Nov,1993,in Netherlands The European Union is composed of 27 sovereign Member States: Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.

Union (EU)

Eurozone established in 1999 and adopted a single currency by 11 EU member states EURO () Monaco, San Marino, and Vatican City are three non-EU members which adopted the EURO EU member states qualified, but not yet using the Euro currency: Denmark, Sweden, United Kingdom

Formation of Eurozone

Criteria to join Eurozone

Five criteria required for countries to qualify for Eurozone : Inflation rate below 2% Long-Term Interest rates Exchange rate Fluctuation Budget Deficit, below 3% of GDP Public Debt, < 60% of GDP

Reasons for Introducing euro and Its Administration

Majority of international trade with other EU members Monetary Stability in Europe Forced EU states to adopt responsible economic policies An introduction of common currency has : Removed exchange rate risks Cut the cost of transactions Encouraged firms to trade across national borders

Reasons for Introducing Euro and Its Administration (Continued)

Euro is managed by Frankfurt-based European Central Bank(ECB) & the Euro system ECB has the sole authority to set monetary policy Euro system participates in : Printing & Minting of notes and coins Distribution of the same in all member states Operation of Euro zone payment systems

Elimination of exchange-rate fluctuations Price Transparency Transaction Costs Increased Trade Cross-borders Increased cross-border employment Expanding markets for business Financial market stability Macroeconomic stability Lower interest rate Structural reforms for European economies Unites Europe

uro

 Cost of transitioning 12 countries currency over to a single currency Training for employees, managers & consumers Countries cannot adjust interest rates Countries cannot adjust exchange rates Restricted government spending Political shock Loss of cultural identity

Introducing uro

Subprime crisis High Public Spending Large government debts

Increasing fiscal deficit

Downgrading of the sovereign debts Fear & Speculation Low market confidence Lowering Euro valuation

On 5th March 2010, the Greek parliament passed the Economy Protection Bill, expected to save 4.8bnuros trough a number of measures including:
Public sector wage reductions Limit of pension reduced to 800 per month up to 13th & 14th month pension installments Extraordinary taxes imposed on company profits A financial stability fund has been created Average retirement increased to 65 from 61 for public sector employees Public-owned companies to be reduced from 6000 to 2000

A Bailout plan by several of the international community were : European governments & the IMF stunned the global stock markets with a 750bn-uro($975bn)package 27 EU nations will together contribute 500bn-uro which will be joined by IMF with another 250bn-uros Major contribution by 16-nation Euro zone block promising a 440bn uros in loan guarantees The European commission is providing 60bn-uros immediately

The future of uro has certain threats:

THE FUTURE OF uro

Differences among European countries Investors increasingly shunning offerings UBS advising investors to sell uro, after the Greek Debt Crisis Strong growth in the US & a tepid recovery in Europe has led uro lose 9% in Dec09-10 Foreign central banks assessing the risk of a possible collapse of the Euro zone Euro zone countries likely to abandon uro to gain back control over interest & exchange rates The estimated 2009 deficit rose from 5.1% to 12.1% as reported to the European Commission

EFFECTS ON INDIAN ECONOMY IMPACT ON EXPORTS:

EU accounts for 21% of the total Indian exports Portugal Italy Spain & Greece contribute only 4% Indian exports mainly textiles, pharmacy products, Gems, etc.. which do not have much impact of the crisis IMPACT ON FOREIGN FUND FLOWS: International investors lost trust in US & Europe due to a series of crisis Majority of institutional investors choose Indian markets with stable fiscal policy

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