Introduction to Euro Zone

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Presentation onPresentation on

EUROZONE CRISIS

PGDM 2 Term - 4

Submitted to: Submitted By:

Prof. Sourabh Khemka Anshuman Singh Parihar

Sunakshi Tongia

Pooja Gangrade

Anurag Giri


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COVERAGECOVERAGE

Introduction

Analysis

GlobalE

ffect Action taken by Govt.

Recommendations


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INTRODUCTIONINTRODUCTION


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Euro ZoneEuro Zone

y It is an economic and monetary union (EMU) of

16 European Union (EU) member states

y They have adopted the euro as their sole

trading currency.y It currently consists of Austria, Belgium,Cyprus,

Finland, France, Germany, Greece, Ireland, Italy,

Luxembourg, Malta, the Netherlands, Portugal,

Slovakia, Slovenia and Spain.


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EUROZONECRISISEUROZONECRISIS

y Due to global financial crisis that began in

2007-08 the euro zone entered its first

official recession in third quarter of 2008.

y Started in Oct 2009 in Greece

y Its immediate causes lie with the US crisis

of 2007-09.


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ANALYSISANALYSIS

Why?

How?

Where?


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What Happened and Why?What Happened and Why?

y Greece: Sharp Budget Deficit

y Large government and External Debts in

PIIGS.

y Greece credit rating downgraded.

y Interest rates surged on government bonds.

y The high debts and rising rate of interests was

a matter of concern.


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Why?Why? Domestic & InternationalDomestic & International

factorsfactorsDomestically:

y High government spending, structurals rigidity, tax

evasion, and corruption have all contributed to

Greeces accumulation of debt over the pastdecade.

Internationally

y The adoption of the Euro aimed at limiting theaccumulation of debt is also believed to have

contributed to Greeces current crisis.


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Where?Where?

The crisis that started in Greece

culminated into a crisis of the Euro zone

as a whole.These 3 have played an important role in the development of crisis:

y Greece

y The financial markets (including the rating

agencies)y The euro zone authorities


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How?How?

So, other Eurozone countries lost confidence as they owned $56bn worth of

Greek govt. bonds


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EFFECTS OF CRISIS GLOBALLYEFFECTS OF CRISIS GLOBALLY


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Effects withinEffects within EurozoneEurozone

y Italy's public debt is so large, if it needed a

bailout, there would not be enough money

available to do so.

y Ratings for the sovereign bonds in numerous

euro zone countries have been downgraded.

y Corruption and tax evasion are widely

prevailing.


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Effects outsideEffects outside EurozoneEurozone

y A drop in demand for metals globally.This has resulted in a fall in metals prices, in particular those that are

used in the construction and manufacturing industries, such ascopper.

y The housing market could slow downconsiderably.

This would slow growth in the construction industry, as well asnegatively impacting sales of furniture retailers.

y The devaluation of the Euro triggered bythe debt crisis will makeAmericanexports more expensive.


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ACTIONS TAKEN BYACTIONS TAKEN BY

GOVERN

MEN

TGOVERN

MEN

TGreece's government has said-y It will continue to cut public salaries.

y Papandreou has introduced a privatization

programmed he hopes will bring in $71bn.

y

There are also plans for the government to sellits holdings in post offices, banks, railways, ports,

and the state lottery.


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RECOMMENDATIONSRECOMMENDATIONS


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1. Volatility in the foreign exchange market will remain

until the euro zone crisis is resolved.

2. We think the western countries, Europe as well as the

US is not looking good economically at all and they are

going to head for a major crisis, therefore we should stay

completely out of those markets and also out of those

currencies.

3. This time the crisis is around sovereign bonds and in cash

and inflation is going to be the major risk. So 100% cash

is also not going to be safe this time. We suggest gold,

silver as a crisis safe investment.


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THANK YOU & ANY QUESTIONSTHANK YOU & ANY QUESTIONS

Introduction to Euro Zone

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