Euro+crisis final123

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Euro+crisis final123

  1. 1. URO CRISIS
  2. 2. Roadmap <ul><li>Evolution of EU </li></ul><ul><li>Europe’s Contribution Globally </li></ul><ul><li>Major Economies of the Euro Zone </li></ul><ul><li>Present Status </li></ul><ul><li>Major Defaulter : GREECE </li></ul><ul><li>Greece Entry in to Financial Mess </li></ul><ul><li>Impact on other European countries </li></ul><ul><li>Greece Crisis Vs NIFTY 50 </li></ul><ul><li>Impact on India </li></ul><ul><li>Possible solutions – Short & Long Term </li></ul><ul><li>Conclusion </li></ul>
  3. 3. Evolution of EU <ul><li>1951 : Treaty of Paris </li></ul><ul><li>1957 : Treaty of Rome </li></ul><ul><li>1967 : Formation of Euro Commission , Euro Council and Euro Parliament </li></ul><ul><li>1986 : Single European Act is signed by EU governments </li></ul><ul><li>1992 : Treaty of Maastricht </li></ul><ul><li>1999 : Euro officially launched </li></ul><ul><li>2001 : Greece joins the Euro Zone </li></ul><ul><li>Total 26 member countries existing at present </li></ul>
  4. 4. Europe’s Contribution Globally <ul><li>21% of Global GDP, i.e., $ 14.8 Trillion </li></ul><ul><li>Major Industries : </li></ul><ul><ul><ul><li>Automotive – Largest automotive region in the world </li></ul></ul></ul><ul><ul><ul><li> – 34% of total vehicles and making 7% of EU’s manufacturing sector, direct + indirect employment is 2 and 10-11 million. </li></ul></ul></ul><ul><ul><ul><li>Biotechnology </li></ul></ul></ul><ul><ul><ul><li>Defense </li></ul></ul></ul><ul><ul><ul><li>Tourism - 247 million tourists, $228.2 billion </li></ul></ul></ul><ul><ul><ul><li>Chemicals – 28% of chem. Prod. Worldwide, Global Leader </li></ul></ul></ul>
  5. 5. Major Economies of the Euro Zone <ul><li>Germany </li></ul><ul><ul><ul><ul><li>GDP is $3.352 trillion </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Engineering , Auto Sector </li></ul></ul></ul></ul><ul><li>United Kingdom </li></ul><ul><ul><ul><ul><li>GDP is $2.139 trillion </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Ship building, Aircraft building </li></ul></ul></ul></ul><ul><li>France </li></ul><ul><ul><ul><ul><li>GDP is $2.676 trillion </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Electronics, Textiles, Food Processing, </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Tourism </li></ul></ul></ul></ul>
  6. 6. Present Status <ul><li>Common European economies problems: </li></ul><ul><ul><ul><li>Fiscal Deficit </li></ul></ul></ul><ul><ul><ul><li>Huge Government Debt </li></ul></ul></ul><ul><ul><ul><li>Decline in credit rating </li></ul></ul></ul><ul><ul><ul><li>Facing an unemployment rate of more than 10% </li></ul></ul></ul>
  7. 7. <ul><li>Constitutes approx 3% of total Euro GDP </li></ul><ul><li>Constitutes approx 1% of World’s GDP </li></ul><ul><li>Fiscal deficit of 13.6 % </li></ul><ul><li>Net Govt. debt is 115.1 % of the GDP </li></ul><ul><li>Saving rate at negative 7% </li></ul><ul><li>Currently rated as the BB+ , A3 , BBB by agencies like Standard & Poor’s, Moody's and Fitch  </li></ul><ul><li>Government debt was €273 billion at 2009 end </li></ul><ul><li>First to receive bailout package of €110 bn </li></ul>Major Defaulter : GREECE
  8. 8. <ul><li>Led to the creation of European Currency </li></ul><ul><li>Created the pillar structure of the EU </li></ul><ul><li>Imposed to important pre-requisites : </li></ul><ul><li>- Fiscal Deficit < 3 % </li></ul><ul><li> - Govt Debt should be < 60 % of GDP </li></ul>Treaty of Maastricht
  9. 9. Greece Entry in to Financial Mess <ul><li>Falsifying data to follow Treaty of Maastricht </li></ul><ul><li>Cheap lending to avoid liquidity crisis </li></ul><ul><li>Unrestrained spending </li></ul><ul><li>Failure to implement financial reforms </li></ul><ul><li>Financial Engineering </li></ul><ul><li>- Cross Currency Swaps </li></ul><ul><li>- Never accounted huge military/hospital expenditure </li></ul>
  10. 10. <ul><li>Involves three steps : </li></ul><ul><li>a) Initial exchange of principal </li></ul><ul><li>b) Exchange of interest rates </li></ul><ul><li>c) Re-exchange of principal at the end of contract </li></ul><ul><li>Generally, known as cross-currency swaps </li></ul><ul><li>Basic motive is to secure cheaper debt </li></ul>Currency Swaps
  11. 11. <ul><li>Greece’s debt crisis is mushrooming to debt laden members of the Euro Zone </li></ul><ul><li>Credibility of the Euro </li></ul><ul><li>PORTUGAL </li></ul><ul><li> - Rise in interest rates on Portugal’s bonds </li></ul><ul><li> - Nervousness spread amongst investors </li></ul><ul><li> - Credit rating downgraded </li></ul><ul><li>SPAIN </li></ul><ul><li> - Budget deficit of around 11% </li></ul><ul><li> - Credit rating also downgraded </li></ul>Impact of Crisis – Euro Zone
  12. 13. Impact of Crisis - Individuals <ul><li>Imposing tax bills </li></ul><ul><li>Financial assistance on the cost of tax payers </li></ul><ul><li>Contagion effect </li></ul><ul><li>Reduced wealth </li></ul><ul><li>Slower recovery </li></ul>
  13. 14. Impact of Crisis - India <ul><li>Negative Aspects: </li></ul><ul><li>FII’s have withdrawn approx 1.2 billion USD from the market, highest in 18 months </li></ul><ul><li>A matter of sentiment, since India’s exposure to EU financial institutions is negligible </li></ul><ul><li>Risk aversion among investors </li></ul><ul><li>Positive Aspects: </li></ul><ul><li>Higher remittances to India </li></ul>
  14. 15. Greece Crisis Vs NIFTY 50
  15. 16. Possible Solutions – Short Term <ul><li>Restructuring of debt and persuading creditors to lengthen the maturity of bonds </li></ul><ul><li>Divest public sector enterprises to reduce fiscal deficit </li></ul><ul><li>Opt out of euro and take control of monetary policy and currency </li></ul><ul><li>Government should get tough on tax evasion </li></ul><ul><li>ECB should stand firm and refuse to offer a bailout </li></ul>
  16. 17. <ul><li>Increase tax as percentage of GDP </li></ul><ul><li>Huge cut in public expenditure </li></ul><ul><li>Increase net exports by reducing real wage rates and domestic investments </li></ul>Possible Solutions – Long Term
  17. 18. Conclusion <ul><li>May bring the entire Europe to its knees </li></ul><ul><li>Affecting Global markets drastically </li></ul>
  18. 19. Any Questions ? Any Questions?
  19. 20. Thank You

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