An attempt to cover different facets of ESD Crisis . Following ppt enumerate how it all got started and draws out rationale behind the formation of EU.

1. -Shikher Kaushik

2. I Was Not born ,Neither Discovered
BUT CREATED
1945 - 1959
A peaceful Europe – the beginnings
of cooperation
• European Coal and Steel
Community
•1957,Treaty of Rome marks the
birth of European Economic
Community
1960 - 1969
The ‘Swinging Sixties’ – a period of
economic growth
• The Beatles
• EU Countries stop charging custom
duties
1980 - 1989
The changing face of Europe - the
fall of the Berlin Wall
• Border b/w East and West
Germany are opened for the 1st time
in 28 Years
1970 - 1979
A growing Community – the first
Enlargement
• Arab – Israeli war of October 1973
results in an energy crisis and
economic problem
• Salzar regime ,1975 and General
Franco,1975

3. Stage 1
• Complete freedom for capital transactions
• Increased co-operation between central banks
• Free use of the ECU (European Currency Unit, forerunner of the €)
• Improvement of economic convergence
Stage 2
• Establishment of the European Monetary Institute (EMI)
• Ban on the granting of central bank credit
• Increased co-ordination of monetary policies
Stage 3
• Irrevocable fixing of conversion rates
• Introduction of the euro
• Conduct of the single monetary policy by the European System of
Central Banks

4. Maastricht Treaty 1992
Introduction Reason

5. Spain
Portugal
1950
•Belgium
•France
•Germany
•Italy
•Luxembourg
•Netherlands
1973 Joined
By
•Denmark
•Ireland
•United
Kingdom
1981
Greece
1986
1995
•Austria
•Finland
•Denmark
2004
•Czech Republic
•Estonia
•Cyprus
•Latvia
•Lithuania
•Hungary
•Malta
•Poland
•Slovakia
•Slovenia
2007
•Bulgaria
•Romania
1-7-13
Croatia

6. Euro Zone
“January 11,1999”
• Austria
• Belgium
• Finland
• France
• Germany
• Ireland
• Italy
• Luxembourg
• Netherlands
• Portugal
• Spain
“January 1,2001”
• Greece
• Estonia
“January,2007”
• Slovenia
“January,2008”
• Cyprus
• Malta
“January,2009”
• Slovakia

7. “We do share
the same DNA
right ..??”

8. Iceland's Near Collapse
Mid 1990’s
• Business Flourished
• Bank Loans,
Investment
Growing
Economy
• Own domestic stock
market in 1985
• Wages increased by
45% b/w 1995 &
2000.
Problem
• Carry Rates
• Krona’s Value fell
catastrophically
While it's common to hear of companies going bankrupt, many were shocked when the
entire country of Iceland almost fell into a state of bankruptcy in 2008.

9. Iceland Fiasco
Skyrocketing
Interest Rates
International
Travel Woes
Impact on Average Icelandic Lessons to be learnt
The Dangers of
Unmanaged
Growth
Govt.
Oversight of
the Banking
Industry
Contagious
18 % in October,2008
IMF announced $ 2.1 billion loan plan. By march 2009 conditions
improved in Iceland

10. Debt
Govt.
Sovereigns
Spending Revenue
Discretionary
1.Defense
2.Others
Debt Services
1. Principal
2.Interest
Non Discretionary
1.Medical
2.Social Security
Tax
Banks &
Financial
Institutions
Collateral
Govt. Bonds
ECB
Printed
Money
• Stocks
• Deposits
• BOP
• Bonds
Financial
Market
Loans

11. Criteria for EZ
 Inflation, a maximum of 1.5% above the average of all members; government debt
and deficit restrictions; exchange rate rules and long term interest rate level
restrictions.
 A maximum of 60% of government debt as a ratio to Gross Domestic Production
[GDP]
Well defined rules meant to exclude weaker countries!!!
PIIGS officially
declared the
World
Heavyweight
Champion …lol ;)

12. Putting Lipstick on a Pig
Portugal
Italy
IrelandGreece
Spain
Not originally Included, Ireland
has found it’s way into the mix

13. Portugal
14th largest economy in
the European Union
slow economic growth,
high unemployment and a
high debt to GDP rating
Hosting over 10 million
people.
exports over 75% of its
agriculture-based
products, including grain,
cattle, cork wheat and
olive oil.
At a Glance

14.  For instance, as per the OECD
surveys, Portugal has one of the
lowest percentage of population
with at least upper secondary
education in the age group of 25 to
64 as compared to the EU average.
-3.1%
-10%
68%
83%
+ves -ves
Fiscal Deficit Public Debt
2007
2009
2007
2009
-2.5%

15. Italy
boot-shaped county in the
south of Europe, eighth-largest
economy in the world and the
fourth-largest in Europe in
terms of nominal GDP
Italy's economy is considered
above average in
development, driven by an
educated, efficient, hard
working labor force
Italy's rich history, famous food
and romantic nature, makes it
one of the most visited
countries in the world
The country has reached an
above average GDP per
capita, with a national debt in
excess of 100% of GDP
Home of fashion

16. “Only Concern”
2%
1%
-4.6%
-6%
2000-2007
2010
EU
Italy
Italy
EU
Growth Rate
Fiscal Deficit
Unemployment rate at
8.4 per cent is lower
than the average for
the euro zone
About two-thirds of the 60
million residents work in
the service sector,
North-South
divide
Italy‘s public debt and
external debt ratios at
119 and 108 are rather
large. Italy has always
been characterized

17. Ireland
AKA Emerald Isle, Ireland is
a famous tourist destination
due to its rich history, unique
climate and terrain
was dubbed the Celtic Tiger,
as it was once considered an
economic anchor with Asian-
like growth characteristics.
participated in the economic
boom throughout the 1990s
and 2000s, but suffered from
the same symptoms and was
the first eurozone country to
fall rapidly into recession in
2008
Ireland required massive
injections to its banks and
significant government
oversight and rebuilding
efforts
4.5 million
Peeps

18. Unemployment Rate
13.7%
Wholesale
nationalization
of Debt
Low Interest
Rates lead too
expansion of
credit
By 2007,There
was downward
trend in
property prices
By first half of
2009 , there
was tightening
of credit control
• Marked Increase in Irish
Bonds
April 2009
• government support for
six banks had risen
markedly to 32 per cent
of GDP
September
2010
• the government decided
to seek a €85 billion
"bailout" from the ECB
and the IMF.
November
2010
Problems of Ireland
•excessive build up of bank lending
•public debt as in the case of Greece

19. Spain
It has population of
over 45 million
5th largest
economy in the EU
and 12th largest in
the world as of
2010
Spain boasted 15
years of above
average GDP
growth and began
to stumble in 2007
Famous for its
historical sites and
diverse climates
and locations,
Spain also relies
heavily on tourism
to drive its
economy

20. +VES -VES
“Spain, like
Ireland, was
considered a
dynamic
economy and till
2005 and
attracted
significant
foreign
investment”

21. EFSF
Empowered to sell bonds & make a loan upto €
440 billion
Financial
Stability
SPV
27
members
of EU
“European Financial Stability Facility”
Bonds were guaranteed by European Commission
that represented
• Whole EU,
• Eurozone member states, and
• The IMF
440 60 250 750
€ 60 billion came from EFSF
mechanism & € 250 billion from
loan backed by IMF
• EFSF was allowed to intervene in Secondary Market in the event of risk to financial crisis.
• It agreed to apply to Portugal and Ireland the same EFSF conditions that they confirmed for Greece
1. Debt maturity upto min. of 15 years, and
2. Reduced Interest rates upto 3.5%
• Also agreed to reduce deficit of member countries below 3% by 2013
Meanwhile moody’s lowered Greece rating to junk status on June 1 2011( to Caa1 from B1)

22. € Facts about Crisis
 2008 EU Leaders agreed for € 200 billion to boost European Economy.
 In October 2008, IMF announced a $2.1 billion loan plan with Iceland with the goal of
restoring confidence in the banking system
 April 2009,EU ordered 4 countries to reduce Budget deficit
 April 2010,ECB & IMF agreed to provide a net safety of € 30 billion to Greece.
 May 2 ,2010 IMF issued € 110 billion bailout package to rescue Greece economy.
 November ,2010 EU & IMF agreed to bail out Irish Republic with € 85 billion.
 Early 2011,EU Finance Minister set up permanent bailout facility of over € 500 billion
and smaller such funds for Portugal i.e. € 78 billion.
 On 21 July ,2011 An extraordinary summit was convened in Brussels to further bailout
€ 109 billion participation from IMF
 By March of 2012 a further Greek bailout of €130 billion was required, and the
permanent bailout facility size was increased to €1 trillion
France Spain Ireland Greece

23. Critical Dimensions EZ crisis
Varying
productivity and
Structural
differences
A monetary union
without a fiscal
union
Unemployment
“Within the euro zone, there is substantial variation in
terms of productivity. The peripheral economies have
lower labor productivity compared to Germany (taken
as a bench mark of 100) which clearly stands out in
terms of unit labour costs. Only France and Ireland are
comparable to Germany on this count”

24. Misconceptions about EZ Crisis
It Will
End
Soon
Europe
Is Rich
Enough
to Bail
Itself out
The U.S.
Isn't
Affected
That
Much
This Is a
Greece
Problem

25. GREECE
Criterion designed to be a basis for qualifying for the EMU
• Size of budget deficits,
• National debt,
• Inflation,
• Interest rates, and
• Exchange rates
Greece failed
to qualify, but
was later
admitted on 1
January 2001
“How it all got started ???”
“Brotherhood”

26. Essentials about Greece
 Greece debt burden accounted for 113% of it’s GDP, Nearly double the eurozone
limit of the 60% debt.
 Credit rating agencies downgraded Greek corporate bonds and govt debt.
 “ Papandreou” insisted that Greece was not about to default on it’s debt.
 EU launched an investigation into excessive Greek debts and it’s budget deficit
was revised upward to 12.7% from 3.7%
 By April,2010 Greek deficit showed it’s debt to be 13.6% of GDP.

27. • December 2014, the Greek government,
under increasing pressure from it's
citizenry, unexpectedly called for an early
election.
• The next day, the Greek stock market
dropped 12.78%, the most since 1989.
Voters scrambled to understand the
situation, and
• On December 29th the election failed to
choose a new president for Greece leading
to a new round of emergency elections to
be held on January 25th, 2015
THE GREEK
CRISIS RETURNS
Greece Current Status
•During 2013 and much of 2014, the Greek
government changed multiple times as new
elections were called and cabinets were
reshuffled.,
• Greek politicians seemed to gain the upper
hand, alleviating concerns of a Greek exit, and
• Mid of 2014 Greece had returned to the
financial markets issuing new bonds for the
first time in years, and its credit rating was
upgraded by Fitch from B- to B.
The election of a new anti-austerity
government in Greece is raising questions
about how the debt-laden state will satisfy
its creditors and citizens weary of cost-
cutting measures.
The leader of the left-wing Syriza
party, Alexis Tsipras, was sworn in as
Greece's new Prime Minister on Monday
after forming a coalition with the right-
wing Independent Greeks party.
Tsipras has vowed to end austerity
measures and renegotiate the terms of
Greece's European Union bailout.

28. Italy –GDP –Government Debt
( In $ billion and %age)

29. Greece –GDP –Government Debt
( In $ billion and %age)

30. Spain –GDP –Government Debt
(In $ billion and %age)

31. Ireland – GDP –Government Debt
( In $ billion and % age)

32. ECB Benchmark Rate

33. Portugal –Government Budget
Value ( In $ billion)

34. Ireland- Government- Budget Value
( In $ billion)

35. Italy – Government- Budget Value
( In $ billion)

36. Greece –Government- Budget
Value ( In $ billion)

37. Spain – Government – Budget
Value ( In $ billion)

38. Bank exposure to Euro zone periphery
[USD Billion Position as of March 2011]
Greece Portugal Ireland Italy Spain
Direct exposure to public and private debt
 France 56.9 28.3 30.1 410.2 146.1
 Germany 23.8 38.9 116.5 164.9 177.9
 UK 14.7 26.6 136.6 68.9 100.8
 US 8.7 5.6 58.9 44.1 57.9
Indirect exposure through derivatives / guarantees
 France 8.3 5.7 25.3 85.6 37.7
 Germany 5.2 12.5 38.8 61.6 45.8
 UK 4.6 4.7 47.6 30.0 30.2
 US 38.4 49.4 59.7 248.0 154.6
Total exposure
 France 65.8 34.0 55.4 495.9 183.7
 Germany 29.0 51.4 155.3 226.5 223.6
 UK 19.2 31.3 184.2 98.9 131.0
 US 47.0 55.0 118.6 292.1 212.5

39. What If Greece Leaves €
“It will finally be able to recover from years of austerity and economic depression”
“Dire Consequences for Europe”
 There would be a capital flight out of Greece initially as people seek to offload the new Greek
currency, expecting that it will promptly be devalued.
 In response, the Greek government would likely impose a series of strict capital controls to prevent
massive outflows of deposits, a measure currently forbidden by EU policy
Distrust in the new currency would also create a massive black market for goods and services
operating outside the law, not taxed by the government, and at a significantly different exchange rate than
that set by the Greek central bank.
The Greek economy would experience massive inflation as prices skyrocket and the value of the new
drachma plummets.
The central bank would be enticed to print more money to maintain civil services and make interest
payments, but this can lead to the risk of a hyperinflation

40. EZ Turning SEZ …LOL !!!
 The ECB would be under fire as the institution responsible for maintaining the price
stability and credit worthiness of the Euro
 After spending over a trillion € to prevent Greece from exiting, the ECB would more than
likely face a crisis of trust
 . At the same time, global banks – but mostly European banks – would suffer exceedingly
large losses, threatening their solvency and leading to potential bank runs. The euro would
fall in value relative to the dollar and other world currencies creating a vicious downward
spiral for all European assets.

41. €/$ Exchange Rate

42. Worldwide Impact
China
India
USA
France
Germany
“Bhai Jab Recession ne nhi Choda toh phir Ye toh Euro hai”

43. United States of America
 On a basic level, many
of the euro bonds would
take losses when they are
translated into another
currency or simply
defaulted on entirely.
 This wholesale
destruction of capital and
the uncertainty of currency
risks and contract law
would shrink the imports
and exports between the
United States.
As at present, the United States
has a large financial stake in
Europe. American banks have
over $600 billion of exposure
in the troubled economies of
the euro zone as per BIS data.
There are close trading links as
Europe is US’s largest trading
partner and the largest
destination for investment by
U.S. corporations
Following the collapse of the
Lehman brothers in 2008, the
US opened short term loans to
European banks. In 2009, the US
Fed went in for the second round
of quantitative easing by buying
treasury bonds and pushing
down long-term interest rates.
By August 2011, its own debt
position has become a matter of
concern. The capacity of US to
accommodate liquidity in order
to support the euro zone
economies, this time around may
be more limited

44. China seeks
Opportunity
Make bargains during a fire sale that may follow to gain
political mileage and acquire useful and perhaps strategic
assets by simply offering to hold troubled assets of the
troubled euro zone States
Diversify its foreign exchange assets.
These assets could be in the form
of sovereign debt as well as real
assets like interest in public sector
units that may be privatized
The manner in which the euro
zone and the EU would respond
to this possibility remains to be
seen

45. India [Recession ka bachaya ESD me lutaya]
Trading
Partner
Bilateral Trade
Agreements
FDI
Trading
Products
Agriculture products, Fuel
and mining products,
machinery and transport
equipment, chemicals, semi
manufactured products
textile and clothing
products
European Union is a major trade
partner accounting for as much as
20.2 per cent of India’s exports (in
2009-10) and 13.3 per cent of
India’s imports
Bilateral trade between the two has been growing on an
average of 9.6 per cent during 2006-10. EU services
exports to India during 2010 was €9.8 billion and EU
imports from India was €8.1 billion
the total FDI from
EU during 2010
amounted to €3.0
billion while India
also invested about
€0.6 billion in the
EU
“European Union countries imported roughly € 33.1 billion worth in 2010 from India. The EU exports to India
amounted to €34.8bl, majority of which was machinery, chemical products and semi manufactured items which
was almost 2.6 percent of EU exports”

46. References
 www.Investopedia.com
 The euro zone crisis
 Its dimensions and implications
[M R Anand ,GL Sharma and Ranjan Dash]
 www.Tradingeconomics.com
 https://www.youtube.com/watch?v=C8xAXJx9WJ8