Eurozone Crisis
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Eurozone Crisis

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Eurozone Crisis Eurozone Crisis Presentation Transcript

  • - Prof. V. K. Nangia EUROZONE CRISIS
  • Agenda
    • Definitions
    • The World
    • European Union
    • Eurozone
    • What Went Wrong
    • Outcome
    • Solutions
    • Analysis and Opinion
    • What Can Plausibly Happen
  • 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
  • The World
  • The 7 Continents
    • Asia
    • Africa
    • North America
    • South America
    • Antartica
    • Europe
    • Australia
    A continent is one of the several landmasses on the Earth, generally identified by convention rather than any strict criteria. SIZE
  • Europe
    • Second smallest continent
    • 47 member countries
    • Population of 731 million (Less than that of India)
    • First to industrialize
    • GDP in 2010 - $19.92 trillion (32.4% of the World)
    • Germany, France and UK are 4 th , 5 th and 6 th largest economy in the World..
  • European Union (EU)
    • Unique economic and political partnership between 27 European countries.
    • Free movement of Capital, Goods, Services and labor.
    • GDP - €12,268,387 million (2010 est.)
  • Member States of EU (Chronologically)
    • 1952 – Belgium, France, Germany, Italy , Luxembourg, Netherlands formed EU
    • 1981 – Greece
    • 1986 – Portugal and Spain
    • 1995 – Austria, Finland and Sweden
    • 1973 – Denmark, Ireland and UK
    • 2004 – Cyprus, Czech, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia
    • 2007 – Bulgaria and Romania
  • 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
  • Eurozone
    • A geographical and economic region consists of all the EU countries that have fully incorporated euro as their national currency
    • 17 Countries
    • Also called “Euro Area”
    • Monetary Policies – ECB (Germany)
    • Fiscal Policies - Individual Countries
  • 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%
  • What Went Wrong……
  • Year 1997 Each Country should not borrow more than 3% of its GDP Agreed! It`s just a norm, right?
  • Offenders
    • Italy – Worst offender; regular in breaking 3% limit
    • Germany and France followed
    • Almost everyone joined
    • Greece never stuck to 3% target, manipulated its borrowing statistics
    • Heavy borrowings
  • Outcome
    • Greece defaults
    • Huge Sovereign debt of Eurozone Countries
    • Govt. and Banks in Eurozone have about $500 billion in outstanding bonds coming due in first quarter of 2012
    • Banks not in a position to issue corporate bonds at affordable rates
    • Recession – Everyone is sitting on their money
    • Weakening of Euro
    • Impacted growth in other parts of the World
  • Solutions
    • Liquidity – delay the crisis
    • Eurozone countries want to funnel $200 billion through IMF
    • Closer budgetary cooperation among 17 eurozone countries
    • A Govt. of bureaucrats is formed in Italy to tackle the situation
  • Analysis and Opinion
  • Mario Draghi, President, ECB
    • ECB loans could indirectly help some heavily indebted European countries if the banks use ECB loans to invest in govt. bonds.
    • 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
    • But the bankss might be willing to resume their purchases if they don’t have to repay their loans to ECB for 3 years
    • By then, region`s financial health might be resolved and governments restored to financial health
  • Uri Dadush
    • G20 must help manage Eurozone crisis:
    • Build a firewall around Spain and Italy
    • Impose demanding conditions on Europe
    • Foster open international trade and reform the WTO
    • Focus on the big pictire
  • What could plausibly happen?