The document discusses the Eurozone debt crisis, providing background on the origins of the euro currency and how debt levels grew unsustainably in Greece, Portugal, Italy and Spain (PIIGS countries). It explains that lack of fiscal controls allowed these countries to overspend for years. The crisis emerged in late 2000s when debt became unsustainable and these countries could no longer borrow from markets. They required bailouts from the EU, IMF and ECB to pay debts and stabilize banks. Root causes included bloated public sectors and uncompetitive economies that struggled with austerity reforms tied to bailout loans.

1. EUROZONE
DEBT
CRISIS
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2. What is the Eurozone Crisis ?
The European debt crisis is the shorthand term
for Europe’s struggle to pay the debts it has built
up in recent decades.
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3. A little History …
•In the year 1999 , Euro Currency was launched.
•“Inspiration for the € symbol come from the
Greek epsilon … crossed by two parallel lines …
to ‘certify’ the stability of the euro. “
•The idea was to
Reduce trading costs
Boost tourism
Smooth the economy
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4. So what went wrong ?
Most governments run a budget deficit. (They Spent
more than they earned)
Lack of strong political leadership in the past years has
meant that the euro was not well supported by good
fiscal and economic policies. We had 17 countries all
behaving differently without any real central fiscal
control to ensure that no country was spending more
than it was earning. This was a recipe for disaster.
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5. Major debt ridden countries
Portugal Ireland Italy
Greece Spain
*Together called as PIIGS countries.
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6. Debt by Jan 2012
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7. A little Background …
• Since joining the euro back in 1999, the
governments of Greece and Portugal (among
other offenders) have gotten used to spending a
LOT of money. When times were good, it wasn't a
problem — banks and other investors were
willing to lend them money on the cheap and their
public sectors became bloated.
•When the financial crisis hit, however, problems
came to a head. Debt levels in Portugal, Italy, and
Greece became unsustainable, and taxes in a
contracting economy are no longer enough to pay
the bills. www.wordpandit.com

8. A little Background …
• Greece, Portugal, and Ireland are still struggling to
bring their public debt under control, after receiving
billions of euros in bailout aid from
I. the European Commission,
II. the International Monetary Fund, and
III. the European Central Bank
(the so-called troika)
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9. A little Background …
• These governments needed this money because it became
too expensive for them to borrow cash on the open
markets, with speculators demanding high rates for
lending and traders even betting on a disorderly sovereign
default.
• The initial round of aid money helped these governments
prop up their banks and pay their bills.
• Ultimately, however, Greece needed even more money to
prevent an economic collapse. EU leaders agreed in July
2011 that a "selective default" was the only option for
Greece. Under this situation, euro area nations guaranteed
payouts on Greek sovereign debt, and the country's private
sector lenders agreed to take a loss — a "haircut" — on
their debt holdings.
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10. The root cause of the problem !
If you think that the problem is about DEBT. No , its not just about the debt.
Lenders need to believe that a country can repay its debt,
Otherwise the interest rates soars,
And borrowing becomes unaffordable
And then the governments ask for emergency loans !
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11. Emergency loans taken by
governments
• May 2010 , Greece 110 bn euros
• Nov 2010 , Ireland 85 bn euros
• May 2011, Portugal 78 bn euros
• July 2011 , Greece (exact amount not
known)
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12. Things you should know about the
Eurozone Crisis
Ireland was the first to falter
The Euro crisis has been rumbling on for a couple of years now as the
number of countries being perceived as having a major debt problem has
increased. Contrary to popular opinion, the first country to slide into crisis
wasn't Greece but Ireland. Throughout the 1990s and 2000s, Ireland had a
booming economy, but it relied on massive levels of personal debt and an
overinflated housing market. So when the global financial crisis hit, the Irish
were particularly hard hit. Housing prices plummeted and banks stopped
lending. The country rapidly fell into recession and the government
suddenly needed to borrow much more to keep going. Then the Irish
government slashed public sector spending, but still couldn't pay its bills.
As a result, the U.K. and wealthier members of the Eurozone have bought
Irish government debt to help support the troubled Emerald Isle.
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13. Things you should know about the
Eurozone Crisis
The power of the ratings agencies
Governments around the globe issue trillions of dollars of debt
each year. This debt is bought by private investors, financial
institutions and pension funds. But how do you know good
government debt from bad? That is where credit agencies like
Moody’s and Standard & Poor’s step in: They assess government
debt for its safety and give it a rating (AAA being the safest
while BBB is the weakest). Many have criticized the ratings
agencies for being harsh on Eurozone countries as a strong
economy like France recently lost its AAA rating.
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14. Things you should know about the
Eurozone Crisis
The crisis could spread to the U.K.
As of this writing, the UK may be as a safe haven to
international investors, but it may not last. In 2011, the U.K.
government borrowed more than the Greece, and its economy
is still sluggish. Meanwhile, the Eurozone accounts for the
majority of Britain’s overseas trade and many British banks
hold billions of government debt from Eurozone countries. As
a result, Britain is threatened by the Eurozone crisis.
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15. Things you should know about the
Eurozone Crisis
Greece’s problem is bigger than Euro membership
Nearly every economist has their own crazy story about the
Greek economy (for example, there are only a handful of people
registered as millionaires for tax purposes in Greece but
250,000 private swimming pools). Tax evasion and corruption
in the public sector are endemic in Greece. The Greek
government finds it impossible to collect the taxes that it needs
to keep a lid on public spending. Membership to the Euro is
preventing Greece from devaluing its currency to make exports
cheaper and to increase tourism.
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16. Things you should know about the
Eurozone Crisis
Germany is the key player in the Eurozone
With Europe’s biggest population, economy, and healthy
government finances, Germany is the powerhouse of the
Eurozone. No wonder, therefore, that other members of the
Eurozone look to Germany for help. However, the German
people back the continuation of the Euro, but they do not
want to spend their hard earned money bailing out the
weakest links in the Euro.
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17. Things you should know about the
Eurozone Crisis
The global financial crisis helped cause the
Eurozone’s current problems
The final cost of the global financial crisis of 2007 and 2008
has been estimated at $3 trillion. That’s a mind boggling sum
and much of it was funded by governments around the globe
borrowing in order to pump money into their banks, which
were on the edge of collapse. At the same time, economies
around the world fell into recession and tax revenues
collapsed. A big financial black hole was created and it still
hasn’t been filled — if anything it’s getting worse.
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18. Things you should know about the
Eurozone Crisis
The global financial crisis helped cause the
Eurozone’s current problems
The final cost of the global financial crisis of 2007 and 2008
has been estimated at $3 trillion. That’s a mind boggling sum
and much of it was funded by governments around the globe
borrowing in order to pump money into their banks, which
were on the edge of collapse. At the same time, economies
around the world fell into recession and tax revenues
collapsed. A big financial black hole was created and it still
hasn’t been filled — if anything it’s getting worse.
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19. Things you should know about the
Eurozone Crisis
Debt levels in the U.S.A. and U.K. are higher than
the Eurozone
Because of Britain and America’s addiction to credit
cards and borrowing to buy property, personal debt
levels are actually higher in these countries than the
Eurozone. Your average French, Italian, and even
Greek person are far less indebted than most Brits
or Americans. This has prompted some observers to
suggest that the ratings agencies got it wrong to
give France a lower credit rating than the U.K.
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20. How will the Euro zone crisis impact
India?
Capital flows into the economy and exports are likely
to take a beating. Foreign institutional investor (FII)
investment pattern is marked with high volatility. A
sudden surge in investment pattern is as detrimental
as an unannounced withdrawal.
A surge in FII investments will lead to increased
inflationary pressures and building of an asset bubble
that could burst anytime.
India is grappling with high inflation and the central
bank has raised the key interest rates a dozen times in
the past year and a half.
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21. How will the Euro zone crisis impact
India?
A slump in domestic industrial growth, unaddressed
agricultural woes, rising interest rates and escalating
fuel costs have compounded the global factors. A series
of scandals emerging from under the carpet have
diluted the faith of foreign investors.
The market volatility has compounded with the
concerns of small investors. Sectors across the board
including auto, oil and gas, metal, FMCG and healthcare
took a beating. Concerns are the current European
financial crisis will curb economic growth.
The risk associated with otherwise favorite sectors
such as banking has increased.
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22. Thank You!
Hope you had a pleasant
learning experience.
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