PTVA’s Institute Of Management

Economic Environment of Business

NAME ROLL NO

AKANKSHA SAWANT 50

MIRAL SAVLA 49

RINKU PAREKH 38

VAIDEHI GAJIWALA 15

YOGESH PARKEH 39
 Euro- official currency of the
European Union.
 Introduced-1999
 Launched coin and Banknote -
1st, January 2002.
 All nations that have joined the
EU since the 1993 was because
of the Maastricht
Treaty(1992)
 2nd largest economy in the
world.(Year-2007)
•Also known as Treaty on European
union

•Signed
on 7 February 1992 between
members of European community

•Led to the creation of EURO.

 Price stability

 Annual government deficit

 Government debt

 Long-term interest rates.

 The euro zone consists :
◦ Austria, o Italy,
◦ Belgium, o Luxembourg,
◦ Cyprus, o Malta,
◦ Estonia, o the Netherlands,
◦ Finland, o Portugal,
◦ France, o Slovakia,
◦ Germany, o Slovenia and
◦ Greece, o Spain.
◦ Ireland,
 The euro and the single market

•Transactions costs
• Price transparency
•Stimulates
investment
“One market, one •Increased trade
money”
•Investment flows
 US Housing Bubble:

http://mjperry.blogspot.com/2009/04/house-price-indexes-usa-vs-europe.html
• US Housing Prices peaked in late 2006

• European Housing Prices peaked a year later

• Financial Crisis struck Europe & US at same

time in April and July of 2007

• International credit markets froze up in

August 2007
 Greece economy is the 27th largest by GDP

 34th Largest by PPP

 In 2000, Greece met the convergence criteria

to enter Eoruzone.

 Member of Eurozone and

excepted Euro as currency.
 Heavy borrowings

 Budget deficit – 5% per year

 Current account deficits - 9% per year

 The national debt – €300 billion

 Budget deficit for 2009 from 6.7% to12.7% of

GDP

 Hiding the actual deficit of

13.6 percent of GDP
 Southern Europe

 Spill over Effect

 Contagion Effect
 Euro zone leaders and the IMF agree to
provide financial safety net.
 April - euro zone finance ministers approve

€ 30 billion
 May 2 - The aid package amounts to € 110

billion over three years.

 May 10 - the rescue loans, with € 5.5 billion

being provided immediately.

 May 18 - Receives a € 14.5 billion loan from
the EU.

 August - Green light for a fresh 9 billion euro

 
 Feb - EU and IMF inspectors give the green
light to Greece for a new € 15 billion

 Budget deficit to 3 billion euros in 2015

 The Celtic Tiger-1990-1995 the GDP was growing at a
faster rate as compared to other GIIPS.
• 1995-2000 growth in
Ireland accelerated
to an avg of 9.6%.
 Irish wages grew

resulting in Real
Effective Exchange
Rate(REER).
 Residential Investments

grew in mid-1990s from

5% to 12% in 2007.
 Domestic demand fell
by 16%
 Investment collapse by
40%
 Housing prices plunged
30% Nationalized Anglo
Irish Bank announced
loss of 12.7 billion
euros.
 Total Assets of
Guaranteed banks are
valued at 2700% of avg
yearly net debt.
 Unemployment was up
from 8.75 to 11.4% in
2008.
 Austerity plan announced :cut of 15% in
Irelands Social Welfare Budget
 Elimination of nearly 25000 public sector
jobs.
 VAT raised at 23%.
 Income tax to rise by 1.9 billion euros.
 Bailout package to the total of 85 billion
euros.
 1990-1995 GDP had grown at an average
annual rate of almost 4 %.

 Portugal's membership in EU on 1 January

1999

 the process of monetary integration has

brought forth a number of imbalances

 GDP growth averaged 0.8

 hit by difficulty paying the debt maturity

 refused to ask for emergency loans

 Portugal need emergency assistance

 government was confident about Portugal

could solve the problem independently
 GDP to contract by 2.7 percent in 2009

 cost of borrowing increased up to more than

7%

 Unemployment reached 10.7 % in 2009

 public finances debt level reached 86 percent.

 The bond market pushed up the interest rate

 Portuguese government that it would reduce

the fiscal deficit.

 The government will sell 60 billion euro's of

assets to ease the debt burden.

 The government will present its 2011 budget to

parliament
 public debt will reach 90.1% of the peak of
GDP.

 In 2013 to have share of GDP fiscal deficit

would reduced to 2.8%
 Civil War Leads to Franco's Rule and the
Reestablishment of a Ceremonial Monarchy.

 Spain Joins the EU and Aznar's Popular

Party Comes to Power.

 Terrorist Bombing in Madrid Leads to

Socialist Party Government
◦ It is 9th largest country as per GDP all over
world and 5th largest in Europe

◦ Most dynamic country in EU attracting huge

number of foreign investors.

◦ Estimated in 2007, that Spain would overtake

countries like Germany by 2011.

◦ Few weak points of Spain like high inflation, etc

 Employment crisis

 Inflation
 Economic ties

 Real estate

 Banking regulation
 Whooping ‘420 billion euro’ for coming out of
crisis.

 Role of China to help spain to come out of crisis.

 India’s exports to Europe could witness a
slump close to 10%
 Export driven sectors such as textile and

software are likely to bear the brunt.

 About 22-28 % of revenues of India’s top

tech majors come from Europe whose

revenues will definitely be affected.
 Government’s overall target of $200 bn for

fiscal be at stake.
 Either the euro zone should go for integrating
their economic policies.

OR

 It collapses, and the Greeks and other

profligate countries devalue and
banks(German, French, British and American)
lose hundreds of billons.
 Problems
◦ It combines efficient and indiscipline economies.
◦ Too high debts
◦ Political problems
 Solutions
◦ Countries affected must:
 Grind down wages
 Raise Productivity
 Slash Spending
 Raise taxes
 Transparent banking system
 Endure such Austerity drivers for many years
 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 the Big Brothers should help the

countries in problem to come out from the
crisis.
THANK YOU!!