2. • The European Union (EU) is an economic and political
union of 27 member states which are located primarily in
Europe.
• The euro (sign: €; code: EUR) is the official currency of
the eurozone: 17 of the 27 member states of the European
Union (EU).
• What is a debt crisis?
It can be defined as the situation where the government
has failed to pay back its debt in full.
The 2010 European Debt Crisis is the most recent
and the only crisis to have its affect on the European
economy on a large scale.
3. Causes Of European Debt Crisis
• The globalization of finance
• Easy credit conditions during the 2002–2008 period
that encouraged high-risk lending and borrowing
practices
• The 2007–2012 global financial crisis
• International trade imbalances
• Real-estate bubbles that have since burst
• The 2008–2012 global recession
4. • Fiscal policy choices related to government revenues
and expenses
• Approaches used by nations to bail out troubled
banking industries and private bondholders, assuming
private debt burdens or socializing losses.
6. History
• In the period between the Carnation Revolution in 1974
and 2010, the democratic Portuguese Republic
governments encouraged over-expenditure and
investment bubbles through Public–private partnership.
• Funding of numerous ineffective and unnecessary
external consultancy and advisory of committees and
firms. This allowed considerable slippage in state-
managed public work and inflated top management and
head officer bonuses and wages
• Persistent and lasting recruitment policies
• Risky credit, public debt creation, and European
structural and cohesion funds were mismanaged across
almost four decades
7. Crisis
• The Gross Domestic Product (GDP) in Portugal contracted
3.30 percent in the second quarter of 2012 over the same
quarter of the previous year
9. The Portuguese economy
• Portugal’s economy has been weak ever since
the financial crisis began in 2008, and the
country has actually been in recession for more
than a year.
• Portuguese government projected that the
country’s economy would contract by 3.3% in
2012.
• Fiscal deficit from 3.1% to 10%
• Public debt deteriorated from 68 % of GDP (in
2007) to 83 % (in 2009)
• As Portuguese companies struggle to pay off
their own massive debt, it’s hard to imagine that
they will be able to help pull the country out of
recession
10. Bailout
• Eurozone leaders officially approved a €78
billion bailout package for Portugal, which
became the third eurozone country, after
Ireland and Greece
• As part of the deal, the country agreed to cut
its budget deficit from 9.8 percent of GDP in
2010 to 5.9 percent in 2011, 4.5 percent in
2012 and 3 percent in 2013
11. Other measures
• Average wage cut of 20% relative to their 2010
baseline, with cuts reaching 25% for those
earning more than 1,500 euro per month
• Cuts in budget and rise in taxation
• In December 2011, it was reported that
Portugal's estimated budget deficit of 4.5
percent in 2011 would be substantially lower
than expected, due to a one-off transfer of
pension funds
12.
13. France Facts
• France was one of the six founding members
of the European Community in 1957.
• Since the foundation of the European
Union, France has been a driving force behind
many European projects.
• France participates in all of the most far-
reaching EU projects, including Economic and
Monetary Union.
14. • France remains at the centre of EU politics. For
example, the country is the largest beneficiary of the
EU's controversial Common Agricultural
Policy (CAP), which costs 41% of the annual EU
budget.
• France is also very influential in the EU.
• It has 29 votes in the Council of the European
Union (the same number as the UK, Germany and
Italy).
15. • France held the Presidency of
the Council of the European
Union for six months from 1
July 2008.
• France is the world's fifth
biggest economy.
16. Debt Crisis In France
• France's public debt in 2010 was approximately U.S.
$2.1 trillion and 83% GDP, with a 2010 budget deficit
of 7% GDP.
• By 16 November 2011, France's bond yield spreads
had widened 450% since July, 2011.
• France's C.D.S. contract value rose 300% in the same
period.
17. • On 1 December 2011, France's bond yield had
retreated and the country auctioned €4.3 billion worth
of 10 year bonds at an average yield of 3.18%, well
below the perceived critical level of 7%.By early
February 2012, yields on French 10 year bonds had
fallen to 2.84%
• In April and May, 2012, France held a presidential
election in which the winner François Hollande had
opposed austerity measures, promising to eliminate
France's budget deficit by 2017 by canceling recently
enacted tax cuts and exemptions for the wealthy
• Raising the top tax bracket rate to 75% on incomes
over a million euros
18. • Restoring the retirement age to 60 with a full pension
for those who have worked 42 years
• Restoring 60,000 jobs recently cut from public
education, regulating rent increases And building
additional public housing for the poor.
• In June, Hollande's Socialist Party won a
supermajority in legislative elections capable of
amending the French Constitution and enabling the
immediate enactment of the promised reforms.
• French government bond interest rates fell 30% to
record lows, less than 50 basis points above German
government bond rates.
19. Germany
• In 2011, Germany's economy as measured
by GDP produced $3.085 trillion. This makes it
the sixth largest economy, after the European
Union (EU), the U.S., China, Japan, and India.
• Its GDP growth rate was 2.7%, slightly less
than the 3.5% rate in 2010, but better than
the 4.7% decline in 2009.
20. • Germany's GDP per capitawas $37,900 -- lower
than in the U.S.
• Germany's growth was usually less than 1% per
year.
• In 2011, GDP percentage share 27%.
21. for three reasons……
• Modernization of Eastern Germany, which initially
cost $70 billion per year, and still ran $12 billion in
2008.
• High unemployment(9.5%) and an aging population
(20% age 65+) means Germany depletes Social Security
faster than can be added via payroll taxes.
• Germany managed to get its budget deficit below 3%
of GDP, as mandated by the EU. It lowered fiscal
spending, which it what it advocates to solve
theGreece debt crisis.
22. Germany's Economy Benefits
From Its Eurozone Membership:
• Germany benefited from its membership in the
EU, and its adoption of the euro.
• Like many other eurozone members, the power
of the euro meant interest rates stayed
low, which spurred investment.
• In fact, many say Germany profited the most from
its membership.
23. • This gave German companies a competitive
advantage, which only improved over time.
• The resultant prosperity meant that German
consumers had more money to buy more locally.
• As a result, the domestic market has recently
become a more significant driver of economic
growth.
• Its strong manufacturing base meant it had plenty to
export to other members of the eurozone, and could
do so more cheaply.
24. • During european greece does not have much
money to payback which we have borrowed.
• Germany proposed european commissioner be
appointed to supplant the Greek government .
• This indicate to suspend greek soverity and the
democratic procee as the price of financial aid to
Greece
25. • German initialy rejected raising ceiling fund of
440bn euro to but later on agreed for 500bn
euros.
• German have decided to bailout gerrce by
22.4bn euros for 3 years in the ceiling fund
26. WHY IS GERMANY IN A DOMINANT
POSITION
• Germany encouraged demand for its exports by
facilitating irresponsible lending practices.
• Stagnant labor costs and relative high prices in
euro countries helped more German exports
• Without these exports,Germany would plunge
into depression.
• About 40 percent of German gross domestic
product comes from exports, much of them to
the EU..
28. European Financial Stability Facility (EFSF)
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 eurozone countries in
financial troubles, recapitalize banks or buy sovereign
debt.
29. European Financial Stabilization Mechanism (EFSM)
On 5 January 2011, the European Union created the
European Financial Stabilisation Mechanism (EFSM), an
emergency funding programme reliant upon funds
raised on the financial markets and guaranteed by
the European Commission using the budget of the
European Union as collateral. It runs under the
supervision of the Commission and aims at preserving
financial stability in Europe by providing financial
assistance to EU member states in economic difficulty.
The Commission fund, backed by all 27 European
Union members
30. Brussels Agreement And Aftermath
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 held
under the European Financial Stability Facility, an
increased mandatory level of 9% for bank capitalisation
within the EU and a set of commitments from Italy to
take measures to reduce its national debt. Also pledged
was €35 billion in "credit enhancement" to mitigate
losses likely to be suffered by European banks.
31. •The crisis wont stop for a period of time till all debt
obligations in eurozone are not cleared.
• The situation is because the euro countries are dependent
on each other.
• Hence the countries are not able to repay the debt to
countries they borrowed from and hence the lender is in
threat of going into debt crisis.
• Policy reactions are made to come out from the debt
crisis.
