Eurozone Crisis- TestCracker


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Everything you wanted to know about Eurozone Crisis:

The Eurozone crisis (often referred to as the Euro crisis) is an ongoing crisis that has been affecting the countries of the Eurozone since late 2009. It is a combined sovereign debt crisis, a banking crisis and a growth and competitiveness crisis.

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Eurozone Crisis- TestCracker

  1. 1. The Eurozone Crisis 1 TestCracker Bangalore Always a current topic!Always a current topic! For the maniacs, by the maniacs… For inquiries: +91 9035001996
  2. 2. For the maniacs, by the maniacs… 2 Quick Questions 1. Who was awarded the Nobel Peace Prize in 2012? Why? 2. How many countries are there in Euro Zone? • Will your answer change on 1st January 2014? 3. How many countries are there in the European Union? • What would have been your answer before 1st July 2013? 4. How many countries are there in Europe? 5. When was Euro launched? Call: 9035001996 If you have been regularly reading ‘The Burning Issues’ on you will already know the answers! Answers – 1. European Union (for keeping Europe free from war) 2. 17 (Latvia will become the 18th in 2014) 3. 28 now (Croatia is the newest) 4. 50 5. 1999 (virtually)
  3. 3. For the maniacs, by the maniacs… 3 Once upon a time in Europe Call: 9035001996 Just after World War II
  4. 4. For the maniacs, by the maniacs… 4 The Evolution of Euro Zone European Coal and Steel Community (1951 Treaty of Paris) European Economic Community (1957 Treaty of Rome) European Free Trade Association (1959) Single European Act (1986) Maastricht Treaty (1992, EEC becomes EU) European Central Bank (1998) Launch of Euro (1999) Treaty of Lisbon (2007) Call: 9035001996
  5. 5. For the maniacs, by the maniacs… 5 Key Concepts Call: 9035001996
  6. 6. For the maniacs, by the maniacs… 6 The Convergence Criteria What is measured How it is measured Convergence Criteria Price stability Harmonized consumer price inflation rate Not more than 1.5% above the rate of the three best performing Member States; and this level of inflation must be sustainable Sound and sustainable public finances Government deficit as % of GDP Not exceeding the reference value of 3%,unless it "has declined substantially and continuously and reach a level that comes close to the reference value”(Article 104 (2)(a) EC Treaty) Sound and sustainable public finances Government debt as % of GDP Not exceeding the reference value of 60%,unless “the ratio is sufficiently diminishing and approaching the reference value at satisfactory pace”(Article 104 (2)(b) EC Treaty) Convergence in long term interest rates Long term interest rates Not more than 2% above the rate of three best performing Member States in terms of price stability Exchange rate stability Deviation from a central rate Participation in the Exchange Rate Mechanism (ERM II) for two years without severe tensions; no devaluation on own initiative Call: 9035001996
  7. 7. For the maniacs, by the maniacs… The Seven Institutions of the European Union 1. The European Parliament is the directly elected parliamentary institution of the European Union (EU). Together with the Council of the European Union (the Council) and the European Commission, it exercises the legislative function of the EU and is one of the most powerful legislatures in the world. 2. The European Council is entrusted with the responsibility of defining "the general political directions and priorities" of the Union. It is thus the Union's strategic (and crisis solving) body. 3. The Council of European Union is is part of the essentially bicameral EU legislature, representing the executives of EU member states. 4. The European Commission (EC) is the executive body of the European Union responsible for proposing legislation, implementing decisions, upholding the Union's treaties and day-to-day running of the EU. 5. The Court of Justice of the European Union (CJEU) is the institution of the European Union (EU) that encompasses the whole judiciary. Seated in Luxembourg. 6. The European Central Bank (ECB) is the central bank for the euro and administers the monetary policy of the 17 EU member states which constitute the Eurozone. 7. The Court of Auditors (ECA) has a mandate to externally check if the budget of the European Union has been implemented correctly, in that EU funds have been spent legally and with sound management. 7 Call: 9035001996
  8. 8. For the maniacs, by the maniacs… A really complex mechanism… 8
  9. 9. For the maniacs, by the maniacs… 9 The Crisis was always coming… Accumulation of massive and unsustainable deficits and public debt levels in a number of peripheral economies Failure to adhere to fiscal commitments Excessive social spending Lack of political will, individually or collectively to take strong action The Eurozone comprised of the Strong economies (Germany, France, Italy, Spain) & the Peripheral economies (Greece, Cyprus, Malta, Portugal, Estonia…) • The periphery states thrived in the first years of the euro, propelled by large infusions of liquidity and unprecedented access to credit from other eurozone states. • The "productive capacity" of the periphery was limited by rigid labor markets and a reduction of economic competitiveness  By 2010, a sovereign debt crisis--most pronounced in Greece--was spreading throughout the periphery and endangering the future of the eurozone.  Between spring 2010 and spring 2011, the EU and the IMF acted to bail out Greece, Ireland, and Portugal.
  10. 10. For the maniacs, by the maniacs… 10 It is not ‘One Crisis’! Each troubled country of Eurozone has its own reasons for the crisis Greece - prolonged deficit spending, economic mismanagement, government misreporting, and tax evasion. Ireland's debt crisis was triggered by a bank default crisis, a result of its housing bubble collapsing in 2008. Spain is struggling with massive unemployment – 29% along with depressing GDP Portugal is in crisis because of over-expenditure and investment bubbles The crisis in Cyprus is a spill-over from Greece!  Overarching theme is the inability of the governments to imagine that there will be a day when they will not be able to finance the deficits! Call: 9035001996
  11. 11. For the maniacs, by the maniacs… The Bailouts 1. Greece has received two bailout packages (110 b Euros in May 2010 + 130 b Euros in Feb 2012) from its eurozone partners and the International Monetary Fund. 2. Ireland secured a 67.5-billion euro package in November 2010. 3. In May 2011, Portugal agreed to a package of 78-billion euros in rescue loans. 4. The Spanish government agreed a deal in July 2012 with eurozone officials to get up to 100-billion euros in rescue loans directly for the banks. The European Central Bank vowed to do “whatever it takes” to save the euro. 5. Cyprus agreed to confiscate a part of deposits in exchange for 10- billion euros in rescue loans (March 2013) 11 Call: 9035001996
  12. 12. For the maniacs, by the maniacs… The EFSF • The European Financial Stability Facility (EFSF) was created by the euro area Member States in May 2010 • Its mandate is to safeguard financial stability in Europe by providing financial assistance to euro area Member States within the framework of a macro-economic adjustment programme. • EFSF was created as a temporary rescue mechanism. • In October 2010, it was decided to create a permanent rescue mechanism, the European Stability Mechanism (ESM).  From this date onwards, the ESM became the main instrument to finance new programmes.  In parallel to the ESM, the EFSF will continue with the ongoing programmes for Greece, Portugal and Ireland. 12 Call: 9035001996
  13. 13. For the maniacs, by the maniacs… Key Facts about ESM The European Stability Mechanism is a permanent crisis resolution mechanism for the countries of the euro area. The ESM issues debt instruments in order to finance loans and other forms of financial assistance to euro area Members States.  intergovernmental organisation under public international law, based in Luxembourg  total subscribed capital of €700 billion, with paid-in capital (€80 billion) and committed callable capital (€620 billion)  effective lending capacity of €500 billion  shareholders are the 17 euro area Member States  Managing Director: Klaus Regling 13 Call: 9035001996
  14. 14. For the maniacs, by the maniacs… 14 The roots of the crisis  Euro Zone is a monetary union – but not a fiscal union  Unsustainable spending on social welfare  ‘Soft’ taxation policies  Easy credit conditions  Increase in bond yields due to credit downgrades  Globalization of finance? Rootsofthecrisis Call: 9035001996
  15. 15. For the maniacs, by the maniacs… 15 Is Crisis the New Normal? Risk of default => Bail-outs => Austerity measures => Subdued economic activity + Political unrest => No solution in sight The Big Question Whom to follow -Whom to follow - Keynes or Hayek?Keynes or Hayek?
  16. 16. For the maniacs, by the maniacs… 16 India EU FTA – 6 years & counting  Negotiations started in 2007  15 round of negotiation without result  Contested issues – • Germany wants  Duty cut in automobile sector, wines and spirits and dairy products  Hike in FDI cap in the insurance sector  Strong intellectual property regime • India wants • Liberalised visa norms for its professionals • Data secure status • Market access in services and pharmaceuticals sector. Call: 9035001996
  17. 17. 17 +91 97398 00887 For the maniacs, by the maniacs… Thank You!Thank You!