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Eurozone Crisis

Eurozone Crisis

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Published by: shivani mehta on Sep 18, 2010
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11/17/2012

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Presented By: CHARU(6810) SHIVANI(6849) SUMAN(6852) RAMAN(6835) KASHIKA(6818

)

INTRODUCTION . y 1990-Introduced as an accounting medium y 1992-Became an actual currency y 1999-World.s largest physical currency with I trillion $ in circulation y Soon it became the second largest currency held in the official foreign reserves of central banks y EUROZONE-EMU of 16 European union member states .

EUROZONE CRISIS y Also known as SOVERIGN DEBT CRISIS-started in October 2009 y It contains structural problems led to its crisis Main Reasons for the crisis:  It has a Monetary Union without a political union  Interest rate differentials  Absence of a common fiscal policy  Weigh heavily on the financial markets  Does not allow for error  Guards only inflation & not deflation .

y The country's deficit (its expenditure in comparison to its revenue) is 12. y National debt has exceeded 300 billion Euros. Greece s debt is 113%of its GDP..DEBT CRISIS IN GREECE y Greece had shifted to the Euro in 2001. y Raise billions of dollars in capital. y This money was principally used to finance larger government spending.7%. y It has US$25 billion dollar of its debt that must be immediately re-financed else it must declare a default on that debt y Fitch ratings has called Greece as Euro zone's weakest member .

y Economic crisis y Cheap lending Reasons for crisis y Unrestrained spending y Failure to implement financial reforms y Corrupt bureaucracy .

Impact of Crisis y Southeastern Europe y Credibility of the euro. y Interest rates are heading high y Decline in Greek stock market y Take-home pay is likely to fall y Slow economic recovery .

Reduced public services. European Commission is providing 60bn Euros immediately.What is happening now? y Cost cut y Reduced wages and pensions of government y y y y employees and increased their retirement age. European governments and (IMF) have issued 750bneuro package of standby funds. Germany's parliament has contributed to a 750bn euro .

negative GDP growth and rising unemployment rates. structural problems evolved: external imbalances accumulated.a high deficit. households indebted and the housing sector was oversized.ECONOMIC CRISIS: SPAIN ySpain : six or seven consecutive quarters of negative growth and galloping unemployment yUnemployment reached 8% to 19. . yThe credit rating agency. yThree negative factors -. yDuring the long period of growth.4% in year 2007 end. lowered its rating on Spain s sovereign debt from stable to negative.

growth. yWhile Spain s share in the ECB is 9%. The amounts borrowed represent a 26.yBanks and savings banks had assets tied to real estate and loans.5% increase over May yThe country urgently needed to tackle three issues simultaneously: sustainability of public finances. yHow long Spain can continue to withstand a doubling of its borrowing costs. which will counteract efforts to cut its deficit. Spanish banks now accounts for 16. . and financial sector reform.5% of direct ECB borrowing.32. yThe market value of those assets :30% and 40% less than peak values. ySpain had a 3 year bond sale at an average yield of 3.

at which point it will still be below 1%.around 4% of German GDP). equivalent to about 10% of Portugal s own debt load). In 2009.5% annually in order to create new jobs. the country was running a high budget deficit y. which is nearly four times higher than it is allowed by the Maastrichtcriteria (= 3 %).2 % of the GDP. the budget deficit reached a new peak of 11. International Monetary Fund (IMF) forecasts show no positive GDP growth until 2011.ySpain s economy and debt load : 5 times that of Greece and owed so much to France ($220 bln). ySpain s economy must grow by 2% to 2. Britain ($114 bln) and Portugal ($28 bln. yThough its overall debt burden was modest at around 53 percent of national income.Germany ($238 bln. GDP growth will not climb above 2% until 2014 .

one can count on the IMF .LESSONS TO INDIAN ECONOMY  Need to maintain fiscal prudence  Dependency on foreign institutions to raise funds  Good policies and strong institutions matter  Capital inflows are great. but some are better than others  Self-regulation of the private sector has its limits  The specific areas for immediate action are many  A realistic projection  In times of need.

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