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