Eurozone Crisis

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  • Cross check the figures with sir (EU GDP)
  • Eurozone Crisis

    1. 1. - Prof. V. K. Nangia EUROZONE CRISIS
    2. 2. Agenda <ul><li>Definitions </li></ul><ul><li>The World </li></ul><ul><li>European Union </li></ul><ul><li>Eurozone </li></ul><ul><li>What Went Wrong </li></ul><ul><li>Outcome </li></ul><ul><li>Solutions </li></ul><ul><li>Analysis and Opinion </li></ul><ul><li>What Can Plausibly Happen </li></ul>
    3. 3. Definitions Crisis – Any event that is, or expected to lead to, an unstable and dangerous situation affecting an individual, group, community and whole society; negative changes in the security, economic, political, societal or environmental affairs. Financial Crisis – The term is applied broadly to the situations in which some financial institutions or assets suddenly lose a large part of their value Recession – A period of general economic decline; typically defined as a decline in GDP for two or more consecutive quarters. Depression – Persisting Recession
    4. 4. The World
    5. 5. The 7 Continents <ul><li>Asia </li></ul><ul><li>Africa </li></ul><ul><li>North America </li></ul><ul><li>South America </li></ul><ul><li>Antartica </li></ul><ul><li>Europe </li></ul><ul><li>Australia </li></ul>A continent is one of the several landmasses on the Earth, generally identified by convention rather than any strict criteria. SIZE
    6. 6. Europe <ul><li>Second smallest continent </li></ul><ul><li>47 member countries </li></ul><ul><li>Population of 731 million (Less than that of India) </li></ul><ul><li>First to industrialize </li></ul><ul><li>GDP in 2010 - $19.92 trillion (32.4% of the World) </li></ul><ul><li>Germany, France and UK are 4 th , 5 th and 6 th largest economy in the World.. </li></ul>
    7. 7. European Union (EU) <ul><li>Unique economic and political partnership between 27 European countries. </li></ul><ul><li>Free movement of Capital, Goods, Services and labor. </li></ul><ul><li>GDP - €12,268,387 million (2010 est.) </li></ul>
    8. 8. Member States of EU (Chronologically) <ul><li>1952 – Belgium, France, Germany, Italy , Luxembourg, Netherlands formed EU </li></ul><ul><li>1981 – Greece </li></ul><ul><li>1986 – Portugal and Spain </li></ul><ul><li>1995 – Austria, Finland and Sweden </li></ul><ul><li>1973 – Denmark, Ireland and UK </li></ul><ul><li>2004 – Cyprus, Czech, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia </li></ul><ul><li>2007 – Bulgaria and Romania </li></ul>
    9. 9. Who Governs EU? Represents the EU`s citizens and is directly elected by them Represents the governments of the individual member countries; Presidency shared by member states on a rotating basis R epresents interests of the Union as a whole
    10. 10. Eurozone <ul><li>A geographical and economic region consists of all the EU countries that have fully incorporated euro as their national currency </li></ul><ul><li>17 Countries </li></ul><ul><li>Also called “Euro Area” </li></ul><ul><li>Monetary Policies – ECB (Germany) </li></ul><ul><li>Fiscal Policies - Individual Countries </li></ul>
    11. 11. A Comparison Population GDP % of World GDP Eurozone 317 million € 08.4 trillion 14.6% EU (27) 494 million € 11.9 trillion 21.0% USA 300 million € 11.2 trillion 19.7% Japan 128 million € 03.5 trillion 06.3%
    12. 12. What Went Wrong……
    13. 13. Year 1997 Each Country should not borrow more than 3% of its GDP Agreed! It`s just a norm, right?
    14. 14. Offenders <ul><li>Italy – Worst offender; regular in breaking 3% limit </li></ul><ul><li>Germany and France followed </li></ul><ul><li>Almost everyone joined </li></ul><ul><li>Greece never stuck to 3% target, manipulated its borrowing statistics </li></ul><ul><li>Heavy borrowings </li></ul>
    15. 15. Outcome <ul><li>Greece defaults </li></ul><ul><li>Huge Sovereign debt of Eurozone Countries </li></ul><ul><li>Govt. and Banks in Eurozone have about $500 billion in outstanding bonds coming due in first quarter of 2012 </li></ul><ul><li>Banks not in a position to issue corporate bonds at affordable rates </li></ul><ul><li>Recession – Everyone is sitting on their money </li></ul><ul><li>Weakening of Euro </li></ul><ul><li>Impacted growth in other parts of the World </li></ul>
    16. 16. Solutions <ul><li>Liquidity – delay the crisis </li></ul><ul><li>Eurozone countries want to funnel $200 billion through IMF </li></ul><ul><li>Closer budgetary cooperation among 17 eurozone countries </li></ul><ul><li>A Govt. of bureaucrats is formed in Italy to tackle the situation </li></ul>
    17. 17. Analysis and Opinion
    18. 18. Mario Draghi, President, ECB <ul><li>ECB loans could indirectly help some heavily indebted European countries if the banks use ECB loans to invest in govt. bonds. </li></ul><ul><li>Many European banks are now facing possible losses on their holdings of bonds issued by cash-strapped governments and don’t want to buy any more </li></ul><ul><li>But the bankss might be willing to resume their purchases if they don’t have to repay their loans to ECB for 3 years </li></ul><ul><li>By then, region`s financial health might be resolved and governments restored to financial health </li></ul>
    19. 19. Uri Dadush <ul><li>G20 must help manage Eurozone crisis: </li></ul><ul><li>Build a firewall around Spain and Italy </li></ul><ul><li>Impose demanding conditions on Europe </li></ul><ul><li>Foster open international trade and reform the WTO </li></ul><ul><li>Focus on the big pictire </li></ul>
    20. 20. What could plausibly happen?
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