* EUROPEAN DEBT CRISES

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

*CONTENTS
*BACKGROUND
*INDTRODUCTION TO DEBT CRISES
*CAUSES OF DEBT CRISES
*EFFECTS
*EFFECTS ON WORLD
*CONCLUSION

* The

*BACKGROUND

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).
1.
2.
3.
4.
5.
6.
7.
8.

Austria
Belgium
Finland
France
Germany
Greece
Ireland
Italy

9.

Luxembourg
10. Netherlands
11. Portugal
12. Spain
13. Slovenia
14. Slovakia
15. Cyprus
16. Malta and
17. Estoni
18. Lativia

*INTRODUCTION
* The

EMU entered its first official recession in the third quarter of

2008, official figures confirmed in January 2009.
* TheEuropean debt crisisis a multi-yeardebt crisisthat has been
taking place in theEuropean Unionsince the end of 2009.
* Eurozonemember(Greece,Portugal,Ireland,SpainandCyprus) were
unable to repay or refinance theirgovernment debtor to bail out
over-indebted banks under their national supervision without the
assistance of third parties like otherEurozone countries,
theEuropean Central Bank(ECB), or theInternational Monetary
Fund(IMF).
* The detailed causes of the debt crises varied.

* In

several
countries,
private
debts
arising
from
a
propertybubblewere transferred to sovereign debt as a result of
banking systembailoutsand 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 toGreece,

Ireland and Portugalduring 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

*Lower Credit Rating:

OF DEBT CRISIS:

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 Outflow
Finance 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 Economy
Assocham 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..!!!