1. .
BY
Richa Tomar
Nishant Parheta

2.  What is euro zone ?
 What is euro zone crisis?
 Country affected and impact on them...
 Present condition .....
 Solutions.....

3.  Euro zone is an economic and monetary union
[emu] of 17 European country.....
 The eurozone currently consists of Austria, Belgium,
cyprus,estonia, Finland, France, Germany, Greece,
Ireland, Italy Luxemburg, Malta, the Netherlands,
portugal,slovakia, Slovenia, and Spain.
 In 1998 eleven member states of union had met the
euro convergence criteria, and the eurozone came
into existence with the official launch of the euro
(alongside national currencies) on 1 January 1999.

4.  The monetary policy of all countries in the eurozone is
managed by the European central bank (ECB)
Whereas all EU member states are part of
the European System of Central Banks (ESCB

5.  It is biggest challenge Europe has faced since
1990.
 Due to global financial crisis that began in
2007-08 the euro zone entered its first official
recession in third quarter of 2008.
 The official figures were released in 2009 Jan.
 On 11 Oct 2008, a summit was held in Paris
by the euro group heads of state &Govt. , to
define a joint action plan for euro zone &
central banks of Europe to stabilize the
economy.

6. 6
GLOBAL ECONOMIC CRISIS
EFFECT ON EU AND EURO
Crisis starts in US sep.’08, but spread’s to Europe,
where in many countries similar problems existed of
housing bubble, excess debt of consumers,
government.
Crises most severe in Greece ,Portugal (fiscal
deficits),Ireland, Spain (housing bubbles, banking
system)

7. PORTUGAL
INFLATED TOP MANAGEMENT AND
HEAD OFFICER BONUSES AND
WAGES IN THE PERIOD BETWEEN
THE CARNATION REVOLUTION
IN 1974 AND 2010. PERSISTENT
AND LASTING RECRUITMENT
POLICIES BOOSTED THE NUMBER
OF REDUNDANT PUBLIC
SERVANTS. RISKY CREDIT,
PUBLIC DEBT CREATION.
IRELAND
THE IRISH SOVEREIGN DEBT
CRISIS WAS NOT BASED ON
GOVERNMENT OVER-SPENDING
BUT FROM THE STATE
GUARANTEEING THE SIX MAIN
IRISH-BASED BANKS WHO HAD
FINANCED A PROPERTY BUBBLE
SPAIN
Debt was largely avoided
by the ballooning tax
revenue from the housing
bubble, which helped
accommodate a decade
of increased government
spending without debt
accumulation
GREECE
Greece was hit especially hard
because its main industries
—SHIPPING and TOURISM —
were especially sensitive to
changes in the business
cycle.
The government spent heavily
to keep the economy
functioning and the country's
debt increased accordingly.

8.  Huge imbalances between surplus countries (Germany,
Holland, Finland) and deficit countries (Spain, Portugal,
Italy)
 Lack of macroeconomic coordination
 Lack of supervision in the levels of private debt, and
asset bubbles
 Lack of a centralised budget to overcome asymmetric
shocks
 Lack of a pan-European debt market (Eurobonds)
 Lack of a lender of last resort
 Lack of jurisdiction on derivative markets and credit
rating agencies

10.  European Financial Stability Facility (EFSF)
On 9 May 2010, the 27 EU member states agreed to create the
European Financial Stability Facility, a legal instrument[ aiming
at preserving financial stability in Europe by providing financial
assistance to eurozone states in difficulty. The EFSF can issue
bonds or other debt instruments on the market with the support
of the German Debt Management Office to raise the funds
needed to provide loans to euro zone countries in financial
troubles, recapitalise banks or buy sovereign debt.
 On 26 October 2011, leaders of the 17 eurozone countries met in
Brussels and agreed on a 50% write-off of Greek sovereign debt
held by banks, a fourfold increase (to about €1 trillion) in bail-
out funds.

11.  ECB injected liquidity into European banks
unable to obtain short-term funds in market.
 Federal Reserve used Euro-dollar swaps to
make dollars available to ECB to lend to
banks.
 ECB did not lower interest rates until October
2008 because of its focus on inflation.
 Euro fell against the dollar due to “safe
haven” flight to US Treasury securities.

12.  Automatic Stabilizers of falling taxes, rising
welfare and unemployment payments kick in
as incomes fall and unemployment rises.
 Discretionary Fiscal Stimulus enacted in most
countries, depending on their fiscal positions.
 European countries limited by Stability and
Growth Pact to 3% fiscal deficits, except in
time of “exceptional economic distress.”

13.  Since joining the euro, Greece has had higher
inflation than other Euro zone members.
 Greece has also increased debt faster than others
to finance generous public sector pay, welfare, and
retirement benefits, while collecting a lower share in
taxes due to widespread tax evasion.
 As a result, Greek goods have become increasingly
expensive and uncompetitive, causing loss of
market share and further reducing revenues.

14. GDP-- $360 billion
Debt-GDP ratio-- 113% of GDP
Budget Deficit-- 12.9% of GDP
Current Account Deficit--11.0% of GDP
Net Foreign Debt-- 70% of GDP
Total Outstanding Public Debt-- 290
billion euro

15.  Spain is experiencing the highest
unemployment rate of 25%.
 Italy- has already taken austerity measures.
The lower house of parliament has voted for
25 billion Euros of cuts to reduce the
country’s deficits. The govt. aims to reduce
budget deficits down from 5.3% of GDP to
2.7% by 2012.

16. India export to Europe could witness a
slump close to 10%
Export driven sector such as textile and
software are likely to bear the burnt
 About 22-28% revenues of India’s top
tech major come from Europe whose
revenue got affected
 Govt overall target of $200 million fiscal
could be at stake.

17. Countries affected must:
Grind Down Wages
Raise Productivity
Slash Spending
Raise Taxes
Transparent Banking System
Endure Such Austerity Drives for many
years

18.  Monetary Union is flawed without political union
behind it
 European governments have tried to act together, not
always successfully.
 Common currency members avoided large
devaluations and foreign currency debt.
 There needs to be more macroeconomic cooperation
to avoid internal imbalances
 Greece facing difficult adjustment problems, European
banks avoiding losses on Greek bonds.
 Germany needs to stimulate internal demand
 EZ periphery needs to be more productive and
competitive
 The EZ needs to tackle the appreciation bias of the
euro