PRESENTED BY

1. INDRAJEET SHARMA 41

2. SAYALI PATIL 35

3. RUTWAJ PINGALE 36

4. VIBHUTI JADHAV 14

5. SUPRIYA SANAP 38

6. SIDDHESH GITE 11

7. PRATIK VORA 53

*EUROPEAN DEBT CRISES

*CONTENTS*BACKGROUND

*INDTRODUCTION TO DEBT CRISES

*CAUSES OF DEBT CRISES

*EFFECTS

*EFFECTS ON WORLD

*CONCLUSION

*BACKGROUND*The European Union (EU) is economic and political union of

27 member nations which are located primarily in Europe.

*EMU consists of 18 nations today and the member countries in the group have same common currency that is ‘Euro’.

*Their broad monetary direction is being decided by ECB (European Central Bank). 9. Luxembourg

10. Netherlands

11. Portugal12. Spain13. Slovenia14. Slovakia15. Cyprus 16. Malta and17. Estoni18. Lativia

1. Austria2. Belgium3. Finland4. France5. German

y 6. Greece7. Ireland8. Italy

*INTRODUCTION*The EMU entered its first official recession in the third quarter

of 2008, official figures confirmed in January 2009.

*The European debt crisis is a multi-year debt crisis that has been taking place in the European Union since the end of 2009.

*Eurozone member(Greece, Portugal, Ireland, Spain and Cyprus) were unable to repay or refinance their government debt or to bail out over-indebted banks under their national supervision without the assistance of third parties like other Eurozone countries, the European Central Bank (ECB), or the International Monetary Fund (IMF).

*The detailed causes of the debt crises varied.

*In several countries, private debts arising from a property bubble were transferred to sovereign debt as a result of banking system bailouts and government responses to slowing economies post-bubble.

*INTRODUCTION

*The European sovereign debt crisis started in 2008, with the collapse of Iceland's banking system, and spread to primarily to Greece, Ireland and Portugal during 2009.

*The debt crisis led to a crisis of confidence for European businesses and economies.

*CAUSES OF THE DEBT CRISES

*One Size Fits All Monetary Policy ECB European Central Bank decided the interest rates suitable for strong nations like Germany whose growth rate was low and hence all the countries got the funds at same rate thus there was a bubble created in booming countries

*Misplaced Confidence And Assessment Of Risk

*Economic Divergence And Trade Imbalances

*Response To The CrisiS

When the euro was created, no mechanism was set up to deal with debt crises such as those seen since 2010. As a result, emergency rescue plans had to be drawn up and agreed on the hoof.

*CAUSES OF THE DEBT CRISES*Country Specific Factor

* Ireland:- (loans totalling €85 billion, including €17.5 billion from Irish Treasury and National Pension Reserve Fund) – declining competitiveness and property bubble funded by banks which went bust and were taken over and underwritten by the state, causing government debt crisis.

*Portugal:- (loans totalling €78bn) – moderately high private and public sector debt, weak competitiveness, and anaemic growth.

*Spain:- (loans totalling €41bn) – an ailing banking sector had lent heavily to construction sector before the housing bubble burst.

* Greece:- (loans totalling €240bn) – high public sector debt, generous public sector benefits, chronic tax evasion and weak competitiveness.

*Cyprus:- (loans totalling €10bn) – collapse of the banking sector (massive relative to size of economy), partly due to links to Greece.

*EFFECTS OF DEBT CRISIS:*Lower Credit Rating:

Each country has a credit rating to measure the safety of its bonds. These ratings are released by independent rating agencies that carefully monitor each country's financial position. If a country starts running into debt problems, the rating agencies will lower its credit rating. This gives investors a heads-up that they need to be more careful about investing in a country's bonds, as there's a higher chance they won't get their money back. 

*Higher Interest Rates:When a country enters a debt crisis, investors become spooked away from buying its bonds. If the government continues selling bonds to keep the country running, it needs to start paying a higher interest rate on its debt.  

*Higher Unemployment: A debt crisis lowers a country's ability to take out more loans. This forces the government to tighten its belt and start running a more balanced budget. The government can do this by cutting spending or raising taxes. Both of these actions create temporarily higher unemployment.

*Less Investment:The last problem caused by a debt crisis is less investment in the struggling country. Since the government is cutting spending, it won't be able to build new infrastructure or fund new research. Businesses also cut back.

*EFFECTS OF DEBT CRISIS*Government Cutbacks:

During a debt crisis, political leaders of other nations as well as creditors put pressure on the country in crisis to cut its expenditure. This often means cuts in health care, unemployment benefit and state pensions. Governments also raise taxes to try to raise funds to cover the debt payments. However, government cutbacks often lead to higher unemployment due to lost government jobs and jobs are also cut in industries that relied on government contracts. The unemployed pay little income tax, which means those who are working have to pay proportionately more. This in turn means they have less to spend elsewhere, leading to further job cuts.

* International Effects:Foreign banks are major bondholders. So when an international debt crisis begins, banks often lose large sums of money, which the banks attempt to recoup by raising loan interest rates and lowering deposit rates. This has a negative effect on the wider economy. Governments that are reliant on countries in crisis as trade partners often end up experiencing credit downgrades, which lead to government cuts and raised taxes. A domino effect can begin, with each country pulling its trading partners into the crisis.

*EFFECT ON WORLD*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 it has larger population which uses Euro.

* The Euro is used to buy goods and services from overseas — if there was a collapse in its value, then they would be less able to buy imports.

* Thus it will slow down the world economy and the growth will be minimum. China has already considered to give bailout package to EU nations.

*Banks around the globe have invested in the government debt of Eurozone countries. These banks also hold large amounts of Euros. 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. It could be like the 2007 and 2008 financial crash all over again, with the global banking system under threat.

*EFFECT ON INDIA*Software and Engineering products

Commerce Secretary Rajeev Kher said India can face larger capital outflow due to weaker euro and export will hit badly.

*Capital OutflowFinance Secretary Rajiv Mehrishi said “Greece crisis does not have any effect directly on India. (But) interest rate may firm up in Europe. In case of firming up of interest rate in Europe, there can be outflow of capital from India,”

*Stock Market Volatality

*Indian EconomyAssocham said “Indian economy is not really centric to Greece directly but if European Union is impacted due to this then India could be affected.”

India is a big commodities importer. Global market concerns about Europe mean that commodity prices, in for particular oil and gas, have fallen significantly recently. The result is likely to be a multi-billion dollar saving for the Indian economy.

*CONCLUSION*Populism, described by white elephant projects and pork-

barrel spending, can never create sustainable wealth. It can only lead to an inevitable disaster and higher social injustice which can trigger social turmoil. 

*The eurozone debt crisis was triggered by misusing the welfare state to fund electoral victories by advocating populist policies under the idea of social justice

*Two solutions are available; either the ECB enters the market a lender of last resort and monetizes debt, which might lead to hyperinflation – a strategy Germany strongly opposes, and rightly so, or we might see serial defaults of certain eurozone countries.

*THANK YOU…..!!!