euro sovereign debt crisis

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1. -Shikher Kaushik 2. I Was Not born ,Neither Discovered BUT CREATED 1945 - 1959 A peaceful Europe the beginnings of cooperation European Coal and Steel Community 1957,Treaty of Rome marks the birth of European Economic Community 1960 - 1969 The Swinging Sixties a period of economic growth The Beatles EU Countries stop charging custom duties 1980 - 1989 The changing face of Europe - the fall of the Berlin Wall Border b/w East and West Germany are opened for the 1st time in 28 Years 1970 - 1979 A growing Community the first Enlargement Arab Israeli war of October 1973 results in an energy crisis and economic problem Salzar regime ,1975 and General Franco,1975 3. Stage 1 Complete freedom for capital transactions Increased co-operation between central banks Free use of the ECU (European Currency Unit, forerunner of the ) Improvement of economic convergence Stage 2 Establishment of the European Monetary Institute (EMI) Ban on the granting of central bank credit Increased co-ordination of monetary policies Stage 3 Irrevocable fixing of conversion rates Introduction of the euro Conduct of the single monetary policy by the European System of Central Banks 4. Maastricht Treaty 1992 Introduction Reason 5. Spain Portugal 1950 Belgium France Germany Italy Luxembourg Netherlands 1973 Joined By Denmark Ireland United Kingdom 1981 Greece 1986 1995 Austria Finland Denmark 2004 Czech Republic Estonia Cyprus Latvia Lithuania Hungary Malta Poland Slovakia Slovenia 2007 Bulgaria Romania 1-7-13 Croatia 6. Euro Zone January 11,1999 Austria Belgium Finland France Germany Ireland Italy Luxembourg Netherlands Portugal Spain January 1,2001 Greece Estonia January,2007 Slovenia January,2008 Cyprus Malta January,2009 Slovakia 7. We do share the same DNA right ..?? 8. Iceland's Near Collapse Mid 1990s Business Flourished Bank Loans, Investment Growing Economy Own domestic stock market in 1985 Wages increased by 45% b/w 1995 & 2000. Problem Carry Rates Kronas Value fell catastrophically While it's common to hear of companies going bankrupt, many were shocked when the entire country of Iceland almost fell into a state of bankruptcy in 2008. 9. Iceland Fiasco Skyrocketing Interest Rates International Travel Woes Impact on Average Icelandic Lessons to be learnt The Dangers of Unmanaged Growth Govt. Oversight of the Banking Industry Contagious 18 % in October,2008 IMF announced $ 2.1 billion loan plan. By march 2009 conditions improved in Iceland 10. Debt Govt. Sovereigns Spending Revenue Discretionary 1.Defense 2.Others Debt Services 1. Principal 2.Interest Non Discretionary 1.Medical 2.Social Security Tax Banks & Financial Institutions Collateral Govt. Bonds ECB Printed Money Stocks Deposits BOP Bonds Financial Market Loans 11. Criteria for EZ Inflation, a maximum of 1.5% above the average of all members; government debt and deficit restrictions; exchange rate rules and long term interest rate level restrictions. A maximum of 60% of government debt as a ratio to Gross Domestic Production [GDP] Well defined rules meant to exclude weaker countries!!! PIIGS officially declared the World Heavyweight Champion lol ;) 12. Putting Lipstick on a Pig Portugal Italy IrelandGreece Spain Not originally Included, Ireland has found its way into the mix 13. Portugal 14th largest economy in the European Union slow economic growth, high unemployment and a high debt to GDP rating Hosting over 10 million people. exports over 75% of its agriculture-based products, including grain, cattle, cork wheat and olive oil. At a Glance 14. For instance, as per the OECD surveys, Portugal has one of the lowest percentage of population with at least upper secondary education in the age group of 25 to 64 as compared to the EU average. -3.1% -10% 68% 83% +ves -ves Fiscal Deficit Public Debt 2007 2009 2007 2009 -2.5% 15. Italy boot-shaped county in the south of Europe, eighth-largest economy in the world and the fourth-largest in Europe in terms of nominal GDP Italy's economy is considered above average in development, driven by an educated, efficient, hard working labor force Italy's rich history, famous food and romantic nature, makes it one of the most visited countries in the world The country has reached an above average GDP per capita, with a national debt in excess of 100% of GDP Home of fashion 16. Only Concern 2% 1% -4.6% -6% 2000-2007 2010 EU Italy Italy EU Growth Rate Fiscal Deficit Unemployment rate at 8.4 per cent is lower than the average for the euro zone About two-thirds of the 60 million residents work in the service sector, North-South divide Italys public debt and external debt ratios at 119 and 108 are rather large. Italy has always been characterized 17. Ireland AKA Emerald Isle, Ireland is a famous tourist destination due to its rich history, unique climate and terrain was dubbed the Celtic Tiger, as it was once considered an economic anchor with Asian- like growth characteristics. participated in the economic boom throughout the 1990s and 2000s, but suffered from the same symptoms and was the first eurozone country to fall rapidly into recession in 2008 Ireland required massive injections to its banks and significant government oversight and rebuilding efforts 4.5 million Peeps 18. Unemployment Rate 13.7% Wholesale nationalization of Debt Low Interest Rates lead too expansion of credit By 2007,There was downward trend in property prices By first half of 2009 , there was tightening of credit control Marked Increase in Irish Bonds April 2009 government support for six banks had risen markedly to 32 per cent of GDP September 2010 the government decided to seek a 85 billion "bailout" from the ECB and the IMF. November 2010 Problems of Ireland excessive build up of bank lending public debt as in the case of Greece 19. Spain It has population of over 45 million 5th largest economy in the EU and 12th largest in the world as of 2010 Spain boasted 15 years of above average GDP growth and began to stumble in 2007 Famous for its historical sites and diverse climates and locations, Spain also relies heavily on tourism to drive its economy 20. +VES -VES Spain, like Ireland, was considered a dynamic economy and till 2005 and attracted significant foreign investment 21. EFSF Empowered to sell bonds & make a loan upto 440 billion Financial Stability SPV 27 members of EU European Financial Stability Facility Bonds were guaranteed by European Commission that represented Whole EU, Eurozone member states, and The IMF 440 60 250 750 60 billion came from EFSF mechanism & 250 billion from loan backed by IMF EFSF was allowed to intervene in Secondary Market in the event of risk to financial crisis. It agreed to apply to Portugal and Ireland the same EFSF conditions that they confirmed for Greece 1. Debt maturity upto min. of 15 years, and 2. Reduced Interest rates upto 3.5% Also agreed to reduce deficit of member countries below 3% by 2013 Meanwhile moodys lowered Greece rating to junk status on June 1 2011( to Caa1 from B1) 22. Facts about Crisis 2008 EU Leaders agreed for 200 billion to boost European Economy. In October 2008, IMF announced a $2.1 billion loan plan with Iceland with the goal of restoring confidence in the banking system April 2009,EU ordered 4 countries to reduce Budget deficit April 2010,ECB & IMF agreed to provide a net safety of 30 billion to Greece. May 2 ,2010 IMF issued 110 billion bailout package to rescue Greece economy. November ,2010 EU & IMF agreed to bail out Irish Republic with 85 billion. Early 2011,EU Finance Minister set up permanent bailout facility of over 500 billion and smaller such funds for Portugal i.e. 78 billion. On 21 July ,2011 An extraordinary summit was convened in Brussels to further bailout 109 billion participation from IMF By March of 2012 a further Greek bailout of 130 billion was required, and the permanent bailout facility size was increased to 1 trillion France Spain Ireland Greece 23. Critical Dimensions EZ crisis Varying productivity and Structural differences A monetary union without a fiscal union Unemployment Within the euro zone, there is substantial variation in terms of productivity. The peripheral economies have lower labor productivity compared to Germany (taken as a bench mark of 100) which clearly stands out in terms of unit labour costs. Only France and Ireland are comparable to Germany on this count 24. Misconceptions about EZ Crisis It Will End Soon Europe Is Rich Enough to Bail Itself out The U.S. Isn't Affected That Much This Is a Greece Problem 25. GREECE Criterion designed to be a basis for qualifying for the EMU Size of budget deficits, National debt, Inflation, Interest rates, and Exchange rates Greece failed to qualify, but was later admitted on 1 January 2001 How it all got started ??? Brotherhood 26. Essentials about Greece Greece debt burden accounted for 113% of its GDP, Nearly double the eurozone limit of the 60% debt. Credit rating agencies downgraded Greek corporate bonds and govt debt. Papandreou insisted that Greece was not about to default on its debt. EU launched an investigation into excessive Greek debts and its budget deficit was revised upward to 12.7% from 3.7% By April,2010 Greek deficit showed its debt to be 13.6% of GDP. 27. December 2014, the Greek government, under increasing pressure from it's citizenry, unexpectedly called for an early election. The next day, the Greek stock market dropped 12.78%, the most since 1989. Voters scrambled to understand the situation, and On December 29th the election failed to choose a new president for Greece leading to a new round of emergency elections to be held on January 25th, 2015 THE GREEK CRISIS RETURNS Greece Current Status During 2013 and much of 2014, the Greek government changed multiple times as new elections wer


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