What is euro zone ? What is euro zone crisis? Country affected and impacts Causes Solutions

1. EUROZONE DEBT CRISIS
Name
.
Amishi Thakkar
Dhiraj Shetty
Nikesh Pednekar
Saurabh Breed
Vishaka Pandagale
Yamini Parmar

2. CONTENTS
What is euro zone ?
What is euro zone crisis?
Country affected and impacts
Causes
Solutions

3. EURO ZONE
Euro zone is an economic and monetary union [emu] of 17
European countries
The eurozone currently consists of Austria, Belgium, Cyprus,Estonia,
Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, Malta,
the Netherlands, Portugal,Slovakia, Slovenia, and Spain.
In 1998 eleven member states of union had met the euro
convergence criteria, and the eurozone came into existence with the
official launch of the euro (alongside national currencies) on 1
January 1999.
The monetary policy of all countries in the eurozone is managed by
the European central bank (ECB) Whereas all EU member states are
part of the European System of Central Banks (ESCB)

4. BENEFITS OF EU
Uniform interest rates
Transaction costs reduced and exchange rate fluctuation ended
Financial integration
The end of speculation and competitive devaluations
Economic cushioning from domestic political instability
CRITERIA'S
Keep the budget deficit below 3% of GDP
Keep public debt below 60% of GDP
Demonstrate long-term price stability
Ensure interest rates remain within certain limits for at least 2
years

5. WHAT IS THE EUROZONE
DEBT CRISIS?
This is also known as Eurozone sovereign debt crisis
The term indicates the financial woes caused due to overspending by come
European countries
When a nation lives beyond its means by borrowing heavily and spending
freely, there comes a point when it cannot manage its financial situation.
When that country faces insolvency. (Insolvency: when it is unable to repay
its debts and lenders start demanding higher interest rates) the cornered
nation begins to get swallowed up by what is known as the Sovereign Debt
Crisis

6. INTRODUCTION TO EURO ZONE
CRISIS
It is 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 2009 Jan.
On 11 Oct 2008, a summit was held in Paris by the euro group
heads of state &Govt. , to define a joint action plan for euro zone
& central banks of Europe to stabilize the economy.

7. GLOBAL ECONOMIC CRISIS
EFFECT ON EU AND EURO
Crisis starts in US Sep.’08, but spread’s to Europe, where
in many countries similar problems existed of housing
bubble, excess debt of consumers, government.
Crises most severe in Greece ,Portugal (fiscal
deficits),Ireland, Spain (housing bubbles, banking system)

8. GREECE’S FINANCIAL PROBLEMS
 Since joining the euro, Greece has had higher inflation than
other Euro zone members.
 Greece has also increased debt faster than others to finance
generous public sector pay, welfare, and retirement benefits,
while collecting a lower share in taxes due to widespread tax
evasion.
 As a result, Greek goods have become increasingly expensive
and uncompetitive, causing loss of market share and further
reducing revenues.

9. SITUATION IN PIIGS

10. CAUSES
Excessive borrowing
One-size-fits-all monetary policy
National economic growth occurring at a faster rate in one country
than in other countries
Economic divergence and trade imbalances .
Lack of jurisdiction on derivative markets and credit rating agencies

11. The reasons leading up to the crisis were different for each country. Some of these factors
are summarised very briefly below:
• Greece– high public sector debt, generous public sector benefits, chronic tax evasion
and weak competitiveness.
• Ireland– declining competitiveness and property bubble funded by banks which went
bust and were taken over and underwritten by the state, causing government debt crisis.
• Portugal– moderately high private and public sector debt, weak competitiveness, and
anaemic growth.
• Spain– an ailing banking sector had lent heavily to construction sector before the
housing bubble burst.
• Cyprus– collapse of the banking sector (massive relative to size of economy), partly due
to links to Greece.
Country-specific factors

12.
On 9 May 2010, the 27 EU member states agreed to create the
European Financial Stability Facility, a legal instrument[ aiming at
preserving financial stability in Europe by providing financial
assistance to eurozone states in difficulty. The EFSF can issue bonds or
other debt instruments on the market with the support of the German
Debt Management Office to raise the funds needed to provide loans to
euro zone countries in financial troubles, recapitalise banks or buy
sovereign debt.
On 26 October 2011, leaders of the 17 eurozone countries met in
Brussels and agreed on a 50% write-off of Greek sovereign debt held
by banks, a fourfold increase (to about €1 trillion) in bail-out funds.
European Financial Stability
Facility (EFSF)

13. Monetary Policy Response by
European Central Bank (ECB)
ECB injected liquidity into European banks unable to obtain short-
term funds in market.
Federal Reserve used Euro-dollar swaps to make dollars available to
ECB to lend to banks.
ECB did not lower interest rates until October 2008 because of its
focus on inflation.
Euro fell against the dollar due to “safe haven” flight to US Treasury
securities.

14. IMPACT ON INDIAN ECONOMY
India’s export to the European region affected
Negative impact on the Indian stock market
Export driven sector such as textile and software are likely to
bear the burnt
Major revenues of India’s top tech come from Europe whose
revenue got affected

15. SOLUTIONS
Countries affected must:
Grind Down Wages
Raise Productivity
Slash Spending
Reduce Borrowing
Raise Taxes
Transparent Banking System
Endure Such Austerity Drives for many years

16. Thank You