Financial stability in Euro zone

Presented by: Mohamed Kashif Raza Neha V jain Neha Khandelwal Priyesh Shah Ronak shah

Gross Domestic Product (US $ Billion)

4,000.00 3,500.00

GDP
3,000.00

US$ Billion
3,309.67 304.87 2,560.00 228.54 203.89 2,051.41 1,407.41

Germany
2,500.00

Greece France Portugal Ireland Italy

2,000.00

1,500.00

1,000.00

Spain

500.00

0.00 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: World Bank Data

European Crisis
1993: European Union was formed 1999: Introduced Euro 11 Countries started using Euro Beneficiated PIIGS Interest Rate < Inflation Rate Countries started accumulating debt

Source: europa.eu

Bond Yield (%)

40 35 30

Germany
25

France Portugal Ireland Italy Spain Greece

20

15

10

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: World Bank Data

Source: tradingeconomics.com Source: tradingeconomics.com

Source: tradingeconomics.com

E.U rescue packages

Greece: 110 Billion
80 Billion (Euro zone Loans)+ 30 Billion (IMF)

Ireland: 85 Billion
22.5 Billion (EFSM) + 17.7 Billion (EFSF) + 4.8 Billion ( Bilateral Aid)+ 22.5 Billion (IMF Loan)+ 17.5 ( Irelands Cash Reserves)

Portugal: 80 Billion from Euro and IMF

Countries
Greece Less Productivity, Pension for Arduous jobs.

Spain Biggest housing bubble, Spains real estate debt is around 35%-40% of its GDP Brought $ 80 billion of Greece, Portugal and Irish bonds and lend around $450 to European governments and European banks with no co-lateral.

Countries
Italy GDP is $US2.05 trillion in 2010 almost 7 times GDP of Greece. Italy is one of the world's largest markets for government bonds. Italy's cost of borrowing continues to soar, it will have to raise around 650 billion ($869 billion) for the next three years. American banks have little ''direct'' exposure to Italy
Source: Analysts Capital Economics

Money Owned ByGerman Banks

28.8 Billion Greece 28.7 Portugal 114.7 Billion Ireland 146.8 Billion Spain

Suggestion by Franco- German

Automatic penalties Harmonization of the fiscal system and the taxation base Adjustment of the pension systems Suggestion to establish minimum rates of investment

ROLE OF EFSF
EFSF EFSFS top credit rating affirmed: AAA-S&P; Aaa-Moodys EFSF places 3 billion bond in support of Ireland. EFSF launches short term funding programme

ROLE OF ECB
June 2009: ECB launches first covered bonds programme. March 2010: Welcomes Greek governments consolidation measures March 2010: Offers support to Greece.

May 2010: Introduces securities markets programme

ROLE OF ECB
US dollar/euro swaps re-activated. June 2010: ESFS established
June 2010: Ends covered bonds programme.

ROLE OF ECB
JULY 2010: Banks stress test results published ECB announces stricter rules on bank collateral

Nov 2010: Ireland seeks financial support

Dec 2010: European systemic risk board set up. Dec 2010: Introduces loan by loan information requirements.

ROLE OF ECB
JUNE 2011: Approves aid to Portugal. AUG 2011: Statement by ECB President. OCT 2011: announces 2nd covered bond purchase programme. Nov 2011: Lowers interest rates by 25 bps.

European Central Bank

ECB Total Assets: 1939 Billion 77.5 Billion Purchased a sovereign bonds from indebted Euro countries. 60.7 Billion Purchase of company bonds as a result of financial crisis.

Expected Aids
European council to give 200 billion to IMF to bailout European countries. European Stability mechanism by July 2012, permanent 500 billion EFSF- 440 billion ECB capping to purchase weekly bonds at 20 billion

Greece budget- 2012

Cut deficit to 5.4%of GDP. Projected 9%of GDP Taxes:
Charging up to 5% on personal income Also controversial property has to pay up to 5% or else face electricity cut.

Elimination of 30,000 public sector jobs- will bring savings of 200 million 950 million- coming from the launch of a unified payment system for civil servants. Spending on health and welfare would fall by 9 per cent. 5.8 per cent overall reduction in wages and pensions

Italys austerity package

30 billion euro package of austerity. Aims to raise more than 10 billion Euros from New property tax, new tax on luxury items like yachts, raise value added tax, crack down on tax evasion and bring forward measures to increase the pension age.

EU treaty with China

Chinas Forex investment ($300 billion)

US

Europe

All 17 members using euro agreed to treaty No UK in the treaty Condition: Stricter fiscal and financial discipline in future budgets