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2. Introduction to Eurozone Debt Crisis
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The Eurozone Debt Crisis is an economic crisis due to the
collapse of financial institutions, high government debt and
rapidly rising bond yield spreads in government securities
faced by several European countries. The European
sovereign debt crisis started in 2008, with the collapse of
Iceland's banking system, and spread to primarily to Greece,
Ireland and Portugal during 2009. The debt crisis led to a
crisis of confidence for European businesses and
economies.

3. Eurozone Member States
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 1999 : Austria,
Belgium, Finland,
France, Germany,
Italy, Ireland,
Luxembourg,
Netherlands, Portugal,
Spain
 2001 : Greece
 2007 : Slovenia
 2008 : Cyprus, Malta
 2009 : Slovakia
 2011 : Estonia

4. The Eurozone
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 The Euro is the official currency of the 17 countries that form the Eurozone.
 The European Central Bank (ECB) located in Frankfurt, Germany is responsible for
the monetary policy of the Eurozone.
 In early stages, the euro was used only in the stock markets, for financial
transactions between banks and for cashless shopping.
 The euro notes and coins were introduced in January of 2002.
 Ten countries (Bulgaria, the Czech Republic, Denmark, Hungary, Latvia, Lithuania,
Poland, Romania, Sweden, and the United Kingdom) are EU members but do not
use the euro.
 Three member states - Britain, Sweden and Denmark - stayed out of this final
stage of EMU.

5. Benefits of a Shared Currency
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 Single currency in single market makes sense
 Price transparency
 Increased Trade and reduced costs to firms
 Uncertainty caused by Exchange rate
fluctuations eliminated
 Strengthen the economies of euro zone
members
 Borrow money from international financial
markets and investors at a much lower rate
 A tangible sign of a European identity

6. The Maastricht Treaty of 1992
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Inflation in each country can only be 1.5% more than the
average of the 3 lowest nations
Gross debt to GDP ratio cannot exceed 60%
Government deficit to GDP cannot exceed 3%
The interest for the zone cannot exceed more than 2% points
than the average of the lowest three nations

7. Consequences of Violation of Treaty
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 Years of unrestrained spending
 Cheap lending and failure to implement financial reforms
 The national debt of Greece
 Appreciation Bias of the Euro = loss of competitiveness

8. So, what led to the Crisis?
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 First of all, many euro zone members did not adhere to the guidelines of the
Maastricht Treaty for borrowing which were in place
 Italy and Germany were the first to break the 3% borrowing rule, with
France not far behind.
 The largest economies in the euro zone, only Spain kept to the guidelines
until the financial crisis of 2008
 In April, 2009 the EU orders France, Spain, the Irish Republic and Greece to
reduce their budget deficits - the difference between their spending and tax
receipts.
 In December 2009, Greece admits that its debts have reached €299.7 billion
the highest in modern history.
 Sovereign Debt: Bonds issued by a national government in a foreign
currency, in order to finance the issuing country's growth.

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Other Causes of the Eurozone Crisis
 Lack of a centralised budget to overcome asymmetric shocks.
 Real Estate bubbles, especially in Spain and Ireland.
 Lack of jurisdiction on derivative markets and credit rating agencies.
 Lack of supervision in the levels of private debt, and asset bubbles.

10. Timeline of European debt crisis
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Greece Debt Crisis: An insight
 Before one to could even think of the
end of great recession of 2008, Greece
gave birth to another crisis.
 Greece debt crisis is actually an
evolution of the global crisis.
 Greece allowed deficits from Central
bank and government bonds to pile
up.
 Greece debt came to light in 2009.
 In 2009 Greece was ranked second
lowest on EU’s index of economic
freedom.
 Country suffers from high level
corruption.
 Economic growth turned negative in
2009 for the first time since 1993.

12. Measures Taken by Greece
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o Budget cuts- almost up to 14 %
o Austerity measure taken to reduce deficit:
I. Hiked taxes on alcohol, tobacco and fuel
II. Increased the retirement age by 2 years
III. Public sector pay cuts
IV. Strong new tax evasions regulation

13. European Debt Saga-Detail
1999
1999
On 1 January, the currency
officially comes into
existence.
2001
2001
Greece joins
the euro.
2002
2002
On 1 January, notes and
coins are introduced.
2008
2008
Malta and Cyprus
join the euro, In
December, EU
leaders agree on a
200bn-euro
stimulus plan to
help boost
European growth
following the global
financial crisis.
2009
2009
In April, the EU
orders France,
Spain, the Irish
Republic and
Greece to reduce
their budget
deficits - the
difference between
their spending and
tax receipts.
2009
In December,
Greece admits
that its debts
have reached
300bn euros -
the highest in
modern history.
2010
2010
Concern starts to
build about all the
heavily indebted
countries in Europe
- Portugal, Ireland,
Greece and Spain
(PIGS).
2011
2011
In April, Portugal
admits it cannot
deal with its
finances itself
and asks the EU
for help.
2012
2012
-On 12 February, Greece
passes the unpopular
austerity bill in parliament -
two months before a
general election.
-March begins with the
news that the Eurozone
jobless rate has hit a new
high.
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2009
In October, amid much
anger towards the
previous government
over corruption and
spending, George
Papandreou's
Socialists win an
emphatic snap general
election victory in
Greece.

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Greece’s Debt Dynamics

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Bailout by- EC, ECB & IMF

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Affect on Other Countries
Contagion
If Greece is not helped, it could drag down the entire
European Union
Threatening economies: Portugal, Spain and Italy
 The impact on the common European currency
15 other euro zone economies who have agreed to help out
Greece
IMF announced a bail-out package

17. Proposed solutions
 First, citizens must elect uncorrupt government officials who care for
the economic and political growth of the country.
 The government must give lower wages looking at threw economic
situation of the country.
 They should reduce the trade imbalances- Encourage exports
 On the restructuring of the debt and the implementation of austerity
measures-Improve Tax Collection
 Improve Tourism
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Conclusion
 The crisis will not cease till all the debt obligations in euro-zone are
cleared. European countries are dependent on each other, so the countries
are unable to repay the debt borrowed from other countries . Therefore
the lender is in a threat of going into debt crisis.
 The Eurozone needs to create a ministry of finance with the creation of
Eurobonds.
 Macro-economic co-operation is needed in order to avoid internal
imbalances.

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Thank You!