The document discusses the Eurozone crisis, including: 1) It provides background on the European Union, Eurozone, and what led to the crisis, including countries exceeding borrowing limits. 2) The crisis resulted in Greece defaulting on debts and huge sovereign debt levels across Eurozone countries, recessionary conditions. 3) Proposed solutions include providing liquidity, closer fiscal cooperation, and forming a new Italian government to address issues. Experts argue the ECB could help by lending to banks. The G20 is urged to help manage the crisis.

1. - Prof. V. K. Nangia EUROZONE CRISIS

2. Agenda Definitions The World European Union Eurozone What Went Wrong Outcome Solutions Analysis and Opinion What Can Plausibly Happen

3. Definitions Crisis – Any event that is, or expected to lead to, an unstable and dangerous situation affecting an individual, group, community and whole society; negative changes in the security, economic, political, societal or environmental affairs. Financial Crisis – The term is applied broadly to the situations in which some financial institutions or assets suddenly lose a large part of their value Recession – A period of general economic decline; typically defined as a decline in GDP for two or more consecutive quarters. Depression – Persisting Recession

4. The World

5. The 7 Continents Asia Africa North America South America Antartica Europe Australia A continent is one of the several landmasses on the Earth, generally identified by convention rather than any strict criteria. SIZE

6. Europe Second smallest continent 47 member countries Population of 731 million (Less than that of India) First to industrialize GDP in 2010 - $19.92 trillion (32.4% of the World) Germany, France and UK are 4 th , 5 th and 6 th largest economy in the World..

7. European Union (EU) Unique economic and political partnership between 27 European countries. Free movement of Capital, Goods, Services and labor. GDP - €12,268,387 million (2010 est.)

8. Member States of EU (Chronologically) 1952 – Belgium, France, Germany, Italy , Luxembourg, Netherlands formed EU 1981 – Greece 1986 – Portugal and Spain 1995 – Austria, Finland and Sweden 1973 – Denmark, Ireland and UK 2004 – Cyprus, Czech, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia 2007 – Bulgaria and Romania

9. Who Governs EU? Represents the EU`s citizens and is directly elected by them Represents the governments of the individual member countries; Presidency shared by member states on a rotating basis R epresents interests of the Union as a whole

10. Eurozone A geographical and economic region consists of all the EU countries that have fully incorporated euro as their national currency 17 Countries Also called “Euro Area” Monetary Policies – ECB (Germany) Fiscal Policies - Individual Countries

11. A Comparison Population GDP % of World GDP Eurozone 317 million € 08.4 trillion 14.6% EU (27) 494 million € 11.9 trillion 21.0% USA 300 million € 11.2 trillion 19.7% Japan 128 million € 03.5 trillion 06.3%

12. What Went Wrong……

13. Year 1997 Each Country should not borrow more than 3% of its GDP Agreed! It`s just a norm, right?

14. Offenders Italy – Worst offender; regular in breaking 3% limit Germany and France followed Almost everyone joined Greece never stuck to 3% target, manipulated its borrowing statistics Heavy borrowings

15. Outcome Greece defaults Huge Sovereign debt of Eurozone Countries Govt. and Banks in Eurozone have about $500 billion in outstanding bonds coming due in first quarter of 2012 Banks not in a position to issue corporate bonds at affordable rates Recession – Everyone is sitting on their money Weakening of Euro Impacted growth in other parts of the World

16. Solutions Liquidity – delay the crisis Eurozone countries want to funnel $200 billion through IMF Closer budgetary cooperation among 17 eurozone countries A Govt. of bureaucrats is formed in Italy to tackle the situation

17. Analysis and Opinion

18. Mario Draghi, President, ECB ECB loans could indirectly help some heavily indebted European countries if the banks use ECB loans to invest in govt. bonds. Many European banks are now facing possible losses on their holdings of bonds issued by cash-strapped governments and don’t want to buy any more But the bankss might be willing to resume their purchases if they don’t have to repay their loans to ECB for 3 years By then, region`s financial health might be resolved and governments restored to financial health

19. Uri Dadush G20 must help manage Eurozone crisis: Build a firewall around Spain and Italy Impose demanding conditions on Europe Foster open international trade and reform the WTO Focus on the big pictire

20. What could plausibly happen?