This document summarizes the Euro zone crisis. It establishes that the Euro zone is an economic and monetary union of 17 European countries that have adopted the euro as their currency. Problems arose as many governments ran budget deficits and lacked central fiscal control. The 2008 global financial crisis severely impacted smaller Euro zone countries like Greece, Portugal, Italy and Spain, known as the PIIGS, giving them too much debt to repay. Key factors that led to the crisis included violations of EU rules, banking sector problems, rising interest rates and huge debt levels. The crisis impacted investors, economies, unemployment and global growth. Present situations still see struggles in the most affected PIIGS countries to reduce debt and unemployment.

1. Euro zone (Union) crisis
Presented by
Naushad chaudhary
PGDM-(Finance)
Batch-(2012-14)
KOHINOOR BUSINESS SCHOOL
MUMBAI
INDIA

2. WHAT IS EURO ZONE?
• Established: 1st January 1999
• It is an economic and monetary union(EMU)of 17 European
Union countries
[1-Germany, 2-Italy, 3-France, 4 -Finland, 5-Netherlands, 6-Ireland, 7-Greece, 8-Austria, 9-Spain, 10-
Portugal, 11-Belgium, 12-Luxembourg, 13-Slovakia, 14-Slovenia, 15-Malta, 16-Cyprus, 17-Estonia]
• They have fully adopted the euro as their national currency.
• The main objective behind forming Euro zone:
-Reduce trading cost
-Boost tourism
-Smooth the economy

3. PROBLEMS IN EURO ZONE
• Most governments were running a budget deficit.
(Spending more than there earning)
• All 17 countries were behaving differently (without any real
central fiscal control
• Lack of strong political leadership

4. INTRODUCTION TO EURO ZONE CRISIS
• Began in 2009 from Ireland:
1990 to 2000-Ireland economy was Booming
(But relied on personal debt + overinflated housing market)
• Other Smaller European countries (PIIGS: Portugal, Italy, Ireland, Greece,
and Spain) were having too much debt and become unable to repay them.
• The Global financial crises in 2008 affected huge specially to small
European countries

5. KEY FACTORS LED TO EURO ZONE CRISIS
• Violation of EU Rules:
-Countries such as Greece and Cyprus did not give real data about the financial and economic
situation
-Greece and Portugal were spending more then there revenue
-Economy slowdown
-Tex revenue started falling down
• Banking Sector Problem: Banks were having a highly risky financial instruments in
there portfolio such as:
-Collateralized Debt Obligations (CDOs)
-Credit Default Swaps
• Rising interest rates:
- Because of Liquidity problem interest rates started picking up
- Become difficult for the borrower to repay there loan

6. Interests Rates on 10-year Government Bonds (in percent):

7. • Huge DEBT: Because of rise in interest rates, reduction in government revenue (Tax).
DEBT TO GDP RATIO OF (PIIGS) COUNTRIES:
(Whole Europe owes €10.84 trillion) in2009

8. • Increase in wage rates: Because of inflation
• Investor confidence wavers: Investors started to transfer there money away
from the problem.
• Key stakeholders tighten their wallets: Reduce spending, Economy slow
down, unemployment
-Government income started shrinking and debts become harder to repay.

9. MAJOR DEBT RIDDEN COUNTRIES BY JAN 2012
 Government debt as a proportion of GDP:
• European Union, Government debt in 2012 (85.3% of GDP)
• Total debt should be no more than 60% of country’s GDP

10. IMPACT OF EUROZONE CRICIS
• Investor’s lose confidence on government securities:
- Greek crisis has made investors nervous about lending money to governments through buying
government bonds.
• Reduced wealth: By raising tax
• Unemployment: (Spain is experiencing the highest unemployment rate of 20%)
• Global economy slowdown:

11. IMPACT OF INDIA
 Capital Market:
• high volatility because of FII’s
• Big (FII) investment leads to increased inflationary pressures (Building of an
asset bubbles)
 Exports and Foreign currency inflow:
• Slowdown in the Manufacturing and Service sectors:
• Depreciation of Rupee (Slow down in Europe, investors investing in US dollar, result USD
started appreciating)
• 1/3rd of Indian tourist arrive from Euro zone, which is affected badly after Euro zone crisis.

12. • Effect of Euro crisis on Indian Export:

13. PRESENT SITUATION IN (PIIGS)
 Budget deficits graph of few European countries:
Greece, Ireland and Portugal still struggling to bring debt under control

14. EUROPEAN YOUTH UNEMPLOYMENT

15. GDP OF FEW EUROPEAN COUNTIRES

16. 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 US should help the countries in problem to come out
from the crisis.

17. THANK YOU
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