EURO CRISIS

ANSHU ARORA RIYA GUPTA MBA HR

INTRODUCTION

EVOLUTION
OF CRISISMAASTRICT TREATY

SOVEIRGN
DEBT CRISIS

IMPACT
OF THE CRISIS CONCLUSION

INTRODUCTION
The Eurozone crisis is an ongoing crisis that has

been affecting the countries of the Eurozone since late 2009. It is a combined sovereign debt crisis, a banking crisis and a growth and competitiveness crisis. The crisis made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties. Banks in the Eurozone are undercapitalized and have faced liquidity problems. Additionally, economic growth is slow in the whole of the Eurozone and is unequally distributed across the member states.

EVOLUTION OF CRISIS
On January 1, 1999 eleven European countries

decided to denominate their currencies into a single currency. In 1992, members of the European Union signed the Maastricht Treaty, under which they pledged to limit their deficit spending and debt levels. However, in the early 2000s, a number of EU member states were failing to stay within the confines of the Maastricht criteria and turned to securitizing future government revenues to reduce their debts and deficits.

 From late 2009, fears of a sovereign debt crisis

developed among investors as a result of the rising private and government debt levels around the world together with a wave of downgrading of government debt in some European states. Causes of the crisis varied by country. In Greece, high public sector wage and pension commitments were connected to the debt increase. Concerns intensified in early 2010 and thereafter, leading European nations to implement a series of financial support measures such as the European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM).

PIIGS
PIIGS is an acronym

that refers to the economies of Portugal, Greece, Spain, and either or both Ireland and Italy..

SOVEREIGN DEBT CRISIS

Just like an individual, when a nation lives beyond its

means by borrowing heavily and spending freely, there comes a point when it cannot manage its financial situation. When that country faces insolvency i.e. when it is unable to repay its debts partially or fully and lenders start demanding higher interest rates, the cornered nation begins to get swallowed up by what is known as the Sovereign Debt Crisis. A country embroiled in a Sovereign Debt Crisis may see the crumbling of its banking system, flight of investment and currency collapse. An economic crisis inevitably leads to lay-offs, closure of businesses, shrinking purchasing power and

 A situation of crisis in one has a ripple effect and

can cause destabilization of the entire region (EU in this case ) It is for this reason that countries like France and Germany with stronger economies have crafted bailouts for Greece. Greece is the country that has probably been the worst hit. Its debt had been spiraling even when it had not adopted the Euro as currency. Besides Greece, Ireland, Portugal, Italy and Spain are among the countries facing financial crisis.

IMPACT OF THE CRISIS

Britain may be in the front line of the Euro crisis,

but it is not the only country affected. The Eurozone is a massive market for businesses from the United States, China, India, Japan, Russia and the other major world economic powers. The International Monetary Fund (IMF), which was set up to help countries in economic difficulty, set aside hundreds of billions of dollars for a bailout of some of the Eurozone countries.

FIRST PICTURE OF THE CRISIS

WHY TO SAVE EURO ?

The wider world is so keen to see the Euro

survive even if that means it has fewer members for the following reasons: 1) To preserve the Eurozones massive consumer market. 322 million Europeans use the Euro every day. Its the currency of seventeen nations. Besides daily activities, these people use the Euro to buy goods and services from overseas if there was a collapse in its value, then they would be less able to buy imports.

2) To prevent a global recession Negative impact on the world economy. At the very least, businesses around the globe

would think twice about investing and taking on new staff while others might start to trim their operations and cut jobs. A global economic recession would be highly likely.
3) To protect the world financial system Banks around the globe have invested in the

government debt of Eurozone countries. If the current crisis gets much worse, then the government debt and currency that they hold will fall in value, which could undermine their own financial well being. This would be bad news for everyone.

UNEMPLOYMENT RATE

Germany has the lowest rate of unemployment rate due to its short-time working scheme and flexible time arrangements in the manufacturing sector

CONCLUSION
The Economic and Monetary

Union (EMU) was more a political than an economic project at the time of its establishment. The gain from the introduction of the euro is less clear, approximately one weeks salary. The cost of breaking up the EMU and the re-introduction of national currencies would be huge. The crisis cannot be solved without a rapid

CONCLUSION
For a structural solution of the

crisis, it is essential for one regulatory authority and one European rescue fund to be established for European banks. Opposition to restructuring Greek debt at the expense of private creditors is difficult to understand and contrary to the no-bailout clause. Currently, the political stalemate looks hopeless. However, given the history of the development of Europe,

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