• The Euro Zone is an economic and monetary
union (EMU) of 18 European Union (EU)
• They have adopted the euro as their sole trading
• 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.
Introduction to Euro Zone Crisis
• It is the biggest challenge Europe has faced
• 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.
Beginning of Crisis
• Started in – Oct 2009 in Greece
• Its immediate causes lie with the US crisis of
• The result in Euro Zone was Sovereign debt
PIIGS: Portugal, Italy, Ireland, Greece, Spain.
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
• Country suffers from high level corruption.
• Economic growth turned negative in 2009 for the first time
• Large government and External Debts in PIIGS.
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
• 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.
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
Effect on Other Countries
• Contagion Effect:
If Greece is not helped, it could drag down the entire
Threatening economies: Portugal, Spain and Italy
Greek crisis has made investors nervous about lending
money to governments through buying government
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
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.
If Greece exits Euro Zone
• People will start withdrawing their Euros out of
• Deposits have already fallen from 13% to euro
• Decline in Standard of Living of Greek citizens.
• Per Capita Income will fall by 55%
• New currency would depreciate by 65% vis a vis
• Unemployment would rise.
Greece should not quit the Euro
• 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
• Either the euro zone should go for integrating
their economic policies.
• It collapses, and the Greeks and other
profligate countries devalue and the banks
(German, French, British and American) lose
hundreds of billions.
• It combines efficient and indiscipline
• Too high debts.
• Political problems.
Countries affected must:
• Grind down Wages
• Raise Productivity
• Slash Spending
• Raise taxes
• Transparent Banking system
• Endure such Austerity Drives for many years
• The US crisis led to Global financial crisis,
which further spread to Euro zone and caused
Euro zone crisis, as these countries were most
• Hence the Big Brothers should help the
countries in problem to come out from the