euro crisis and its impact on global economy

7/30/2019 Euro crisis and its impact on Global Economy

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PRESENTINGBY

A.RAGHUVEER

12DF014

* EURO CRISIS & ITS IMPACT ON

GLOBAL ECONOMY


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*32member states

*17 countries adopted the euro -the euro zone

*3 euro zone bailouts: Greece,Ireland, Portugal

*2 countries have received informalbailouts: Italy and Spain


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*The European debt crisis is the shorthand term for Europesstruggle to pay the debts it has built up in recent decades.

* Five of the regions countries Greece, Portugal, Ireland, Italy,

and Spain have, to varying degrees, failed to generate enough

economic growth to make their ability to pay back bondholdersthe guarantee it was intended to be.

*Euro zone crisis often referred to as European Sovereign Debt

Crisis.


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*Euro Currency came to existence in 1999 and in 2002 notes andcoins began to circulate.

*EU Union agreed to exactly the same 3% borrowing limit back

in 1997, when the euro was being set up.

*The "stability and growth pact" was insisted on by Germanfinance minister Theo Waigel.

3/9 ITALY

Worst Offender5/9 GERMANY

First to Break rules

6/9 FRANCE

Offender

9/9 SPAIN

Top of the Class


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*Germany, France and Italy should be in trouble with all thatreckless borrowing, while Spain should be reaping the rewards of

its virtue.


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*The global economy has experienced slow growthsince the U.S. financial crisis of 2008-2009.

*Greece was the first country to feel the pinch of

weaker growth.*Necessitated a series of bailouts by the European

Union and European Central Bank (ECB).


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*Big build-up of debts in Spain and Italy before 2008.

*It was the private sector - companies and mortgage borrowers -

who were taking out loans.


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*All the debt helped finance more and more imports by Spain, Italy

and even France.

*Germany became an export power-house after the euro zone wasset up in 1999.


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*But debts are only part of the problem in Italy and Spain.

*During the boom years, wages rose and rose in the south (and in

France).

*German unions agreed to hold their wages steady. So Italian and

Spanish workers now face a huge competitive price disadvantage.


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*Spain and Italy are now facing nasty recessions,

because no-one wants to spend.

*And now governments - whose borrowing has

exploded since the 2008 financial crisis savaged theireconomies - have agreed to drastically cut their

spending back as well.


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CUT SPENDING DONT CUT SPENDING

1) More unemployment , which maypush wages down to more competitive

levels .

2) Even so, lower wages will just

make people's debts even harder to

repay. And3) Lower wages may not even lead to

a quick rise in exports,

4) In any case, they can probably

expect more strikes and protests, and

more nervousness in financialmarkets.

1) The amount they borrow each

year has exploded since 2008 due

to economic stagnation and high

unemployment.

2) Economy looks to be chronically

uncompetitive within the euro.3) Meanwhile, other European

governments may not have

enough money to bail them out.


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*The primary course of action has been a series of bailoutsfor Europes troubled economies.

* In spring, 2010, when the European Union and

International Monetary Fund disbursed 110 billion eurosto Greece.

*Greece required a second bailout in mid-2011, this time

worth about $157 billion.

*On March 9, 2012, Greece and its creditors agreed to a

debt restructuring that set the stage for another round of

bailout funds.


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*Ireland and Portugal also received bailouts, in

November 2010 and May 2011, respectively.

*The Eurozone member states also created the European

Financial Stability Facility (EFSF) to provide emergency

lending to countries in financial difficulty.

*The ECB announced a plan, in August 2011, to purchase

government bonds.

*In December 2011, the ECB made 489 ($639 billion)in credit available to the regions troubled banks at ultra-

low rates, then followed with a second round in

February 2012.


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*With the market turmoil of 2008 and 2009 , investors reaction to

any bad news out of Europe was swift.

* European bank stocks and the European markets as a whole

performed much worse than their global counterparts during thetimes when the crisis was on center stage.

*The bond markets of the affected nations also performed poorly.

*At the same time, yields on U.S. Treasuries fell to historically

low levels in a reflection ofinvestors "flight to safety."


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*Britain may be in the front line of the Euro crisis.

* The Eurozone is a massive market for businesses from the

United States, China, India, Japan, Russia and the other major

world economic powers.

The world is so keen to see the Euro survive even if that

means it has fewer members for the following reasons.

*To preserve the Eurozones massive consumer market.

*To prevent a global recession.

*To protect the world financial system.


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*Impact on Software Sector

*Impact on Foreign Direct Investment(FDI)

*Impact on Exports

*Impact on Foreign Institutional Investments(FII)

*Inflationary scenario

*Exchange rate Depreciation could worsen the outlook


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FUTURE

OF

EURO ZONE ?

euro crisis and its impact on global economy

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