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    European Debt Crisis

    Uploaded by

    Prabhat Pareek
    The document provides an overview of the European debt crisis, including its causes and impacts. It discusses that some European countries overspent and took on too much debt, making them unable to repay their obligations. Key causes included rising government deficits, weak currencies pre-Euro that led to overspending, trade imbalances like Germany's surplus, and structural issues in having monetary but not fiscal union. Affected countries received emergency loans and imposed austerity measures, while impacts included lowered market confidence and potential decline in trade and FDI for countries like India.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    European Debt Crisis

    Uploaded by

    Prabhat Pareek
    90 views21 pages
    The document provides an overview of the European debt crisis, including its causes and impacts. It discusses that some European countries overspent and took on too much debt, making them unable to repay their obligations. Key causes included rising government deficits, weak currencies pre-Euro that led to overspending, trade imbalances like Germany's surplus, and structural issues in having monetary but not fiscal union. Affected countries received emergency loans and imposed austerity measures, while impacts included lowered market confidence and potential decline in trade and FDI for countries like India.

    Original Description:

    Euro Zone, EU

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    The document provides an overview of the European debt crisis, including its causes and impacts. It discusses that some European countries overspent and took on too much debt, making them unable to repay their obligations. Key causes included rising government deficits, weak currencies pre-Euro that led to overspending, trade imbalances like Germany's surplus, and structural issues in having monetary but not fiscal union. Affected countries received emergency loans and imposed austerity measures, while impacts included lowered market confidence and potential decline in trade and FDI for countries like India.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    90 views21 pages

    European Debt Crisis

    Uploaded by

    Prabhat Pareek
    The document provides an overview of the European debt crisis, including its causes and impacts. It discusses that some European countries overspent and took on too much debt, making them unable to repay their obligations. Key causes included rising government deficits, weak currencies pre-Euro that led to overspending, trade imbalances like Germany's surplus, and structural issues in having monetary but not fiscal union. Affected countries received emergency loans and imposed austerity measures, while impacts included lowered market confidence and potential decline in trade and FDI for countries like India.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 21

    European Debt Crisis

    Presented To:

    Prof. Saumya Mishra

    Presented By:

    Prabhat Pareek
    Satyendra singh Rajput
    Shravani Bhattacharya
    Shashank Sharma
    Sunny Deo

    Agenda

    Brief History
    What is Euro debt Crisis?
    Causes for the Crisis
    Remedial Actions
    Impact on Indian Economy
    Conclusions

    European Union (EU)


    Unique economic and
    political partnership
    between 28 European
    countries
    Free movement of
    Capital, Goods, Services
    and labor
    GDP - $13.15trillion
    (2013)

    Member States of EU
    1958 : Belgium, France, Germany, Italy,
    Luxembourg, Netherlands formed EU
    1981 : Greece
    1986 : Portugal and Spain
    1995 : Austria, Finland and Sweden
    1973 : Denmark, Ireland and UK
    2004 : Cyprus, Czech, Estonia, Hungary, Latvia,
    Lithuania, Malta, Poland, Slovakia and Slovenia
    2007 : Bulgaria and Romania
    2013 : Croatia

    European Monetary Union


    A geographical and economic region consists of all the EU
    countries that have fully incorporated euro as their national
    currency
    19 Countries
    Also called Euro Area
    Monetary Policies ECB (Germany)
    Fiscal Policies - Individual Countries

    Who Governs EU?


    Eu
    ro
    pe
    an
    Co
    m
    mi
    ssi
    on
    Council of
    European
    Union

    European Parliament

    Represents interests of the


    Union as a whole

    Represents the governments


    of the individual member
    countries; Presidency shared
    by member states on a
    rotating basis

    Represents the EU`s citizens


    and is directly elected by
    them

    What is Euro debt Crisis?


    This is also known as Eurozone sovereign debt crisis
    The term indicates the financial woes caused due to
    overspending by some European countries
    When a nation lives beyond its means by borrowing
    heavily and spending freely, there comes a point when it
    cannot manage its financial situation
    It is unable to repay its debts and lenders start demanding
    higher interest rates, the cornered nation begins to get
    swallowed up by what is known as the Sovereign Debt
    Crisis

    Main European countries affected in the European Debt Crisis


    COUNTRIES

    STATISTICS

    France

    Debt/G.D.P: 81.7%
    Unemployment. Oct 2011: 9.8%
    S&P Rating: AAA

    Germany

    Debt/G.D.P: 83.2%
    Unemployment. Oct 2011: 5.5%
    S&P Rating: AAA

    Greece

    Debt/G.D.P: 142.8%
    Unemployment. July 2011: 18.3%
    S&P Rating: CC

    Italy

    Debt/G.D.P: 119%
    Unemployment. Oct 2011: 8.5%
    S&P Rating: A

    Portugal

    Debt/G.D.P: 93%
    Unemployment. Oct 2011: 12.9%
    S&P Rating: BBB-

    Spain

    Debt/G.D.P: 60.1%
    Unemployment. Oct 2011: 22.8%
    S&P Rating: AA

    Source:European commission

    CAUSES FOR THE CRISIS


    Rising government debt and deficit levels
    Countries with originally weak currencies (and higher interest
    rates) suddenly enjoyed much more favorable credit terms, which
    spurred private and government spending and led to an economic
    boom.

    DEBT PROFILE OF EUROZONE


    COUNTRIES

    Source: ECB

    Trade Imbalance
    Almost all the countries in Eurozone have trade deficits
    A trade deficit is when imports exceed exports. Trade deficits
    have goods and services components. A country that is a net
    importer of goods and services must borrow capital to fund
    this activity

    Germany has a significant trade surplus, meaning it is a net


    exporter.

    Structural problem of Eurozone system


    There is a structural contradiction within the euro system,
    namely that there is a monetary union (common currency)
    without a fiscal union (e.g., common taxation, pension, and
    treasury functions)
    In the Eurozone system, the countries are required to follow a
    similar fiscal path, but they do not have common treasury to
    enforce it.
    So it is hard to control and regulate national financial
    institutions.
    Greece is example that highlights this problem(High social
    welfare spendings !!!)

    High Interest rates


    After failing to payback the huge debts the
    interest rates to repay rose significantly and
    swallowed the weaker economies in euro zone,
    further burdening their current situation.

    Remedial Actions
    Emergency loans have been extended as bailouts mainly by
    stronger economies like France and Germany, and also by the
    IMF
    ECB provides 500 Euro loans at very low interest rates to
    struggling banks
    The EU member states have also created the European
    Financial Stability Facility (EFSF) to provide emergency loans
    Restructuring of the debt
    Austerity measures have been enforced

    Impact on Indian economy


    Lowered the market sentiments due to decrease in confidence
    levels
    Decline in trade
    Could lead to rise in unemployment
    Lower FDI and FII

    Conclusion
    It is not always a wise economic move to borrow money while
    already in debt
    Unified Fiscal body should be formed by the eurozone to monitor the
    financial budgets of all the members to keep check on them
    Citizens must elect uncorrupt government which cares for the
    economic and political growth of the country
    With increased global integration, the Indian economy now is subject
    to greater influence of global business cycles. So any Impact on global
    front is bound to hit India sooner or latter.

    THANK YOU

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