Future of Euro Zone


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Future of Euro Zone

  2. 2. Group 6 Members • Akshit Singhi 2013003 • Kaushal Jakhelia 2013019 • Netraa Patel 2013024 • Riddhi Solanki 2013032 • Tejas Udeshi 2013051 • Ashutosh Dhanuka 2013061
  3. 3. Introduction • The Euro Zone is an economic and monetary union (EMU) of 18 European Union (EU) member states. • They have adopted the euro as their sole trading currency. • Euro became a reality on Jan 1, 1998 , but came for the European consumers on Jan 1 2002. • It consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.
  4. 4. Introduction to Euro Zone Crisis • It is the biggest challenge Europe has faced since 1990. • Due to global financial crisis that began in 2007-08 the euro zone entered its first official recession in third quarter of 2008. • The official figures were released in Jan 2009.
  5. 5. Beginning of Crisis • Started in – Oct 2009 in Greece • Its immediate causes lie with the US crisis of 2007-09. • The result in Euro Zone was Sovereign debt crisis. PIIGS: Portugal, Italy, Ireland, Greece, Spain.
  6. 6. What Happened and Why? • 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. • Large government and External Debts in PIIGS. 6
  7. 7. Greek Debt Crisis • In the first quarter of 2010, the national debt of Greece was put at €300 billion ($413.6 billion), which is bigger than the country's economy. • Greece has the worst combination of high debt level, large budget deficit and large external debt. • Income hit by widespread tax evasion. • May 2010 – 110bn Euros of bailout loans. • July 2011 – earmarked to receive another 109bn Euros.
  8. 8. GDP - $360 billion Debt-GDP ratio – 113% of GDP Budget Deficit – 12.9% of GDP Current Account Deficit- 11.0% of GDP Net Foreign Debt – 70% of GDP Total Outstanding Public Debt- 290 billion euro
  9. 9. Greece’s Debt Dynamics Source: Economist.com 10
  10. 10. Effect on Other Countries • Contagion Effect: If Greece is not helped, it could drag down the entire European Union Threatening economies: Portugal, Spain and Italy Greek crisis has made investors nervous about lending money to governments through buying government bonds. 11
  11. 11. Situation of other countries • Spain is experiencing the highest unemployment rate of 20%. • Italy- has already taken austerity measures. The lower house of parliament has voted for 25 billion Euros of cuts to reduce the country’s deficit. The govt. aims to reduce budget deficits down from 5.3% of GDP to 2.7% by 2012.
  12. 12. Effect on India • India’s exports to Europe could witness a slump close to 10%. • Export driven sectors such as textiles and software are likely to bear the brunt. • About 22-28 percent of revenues of India’s top tech majors come from Europe whose revenues will definitely be affected. • Government’s overall target of $200 billion for the fiscal could be at stake.
  13. 13. If Greece exits Euro Zone • People will start withdrawing their Euros out of the banks. • Deposits have already fallen from 13% to euro 160 Billion. • Decline in Standard of Living of Greek citizens. • Per Capita Income will fall by 55% • New currency would depreciate by 65% vis a vis the euro. • Unemployment would rise.
  14. 14. Greece should not quit the Euro Zone • More Competitive in the long run with control over its monetary and trade policy. • Greeks interest rates would increase making business loans very expensive. • Italy, Spain will also leave. • An isolated Greece will lack policy and credibility.
  15. 15. Future Predicted • Either the euro zone should go for integrating their economic policies. OR • It collapses, and the Greeks and other profligate countries devalue and the banks (German, French, British and American) lose hundreds of billions. ,
  16. 16. PROBLEMS • It combines efficient and indiscipline economies. • Too high debts. • Political problems.
  17. 17. SOLUTIONS Countries affected must: • Grind down Wages • Raise Productivity • Slash Spending • Raise taxes • Transparent Banking system • Endure such Austerity Drives for many years
  18. 18. CONCLUSION • The US crisis led to Global financial crisis, which further spread to Euro zone and caused Euro zone crisis, as these countries were most affected. • Hence the Big Brothers should help the countries in problem to come out from the crisis.
  19. 19. THANK YOU