This presentation explores the causes of the European debt crisis, timeline of the crisis, its extent, how it is being addressed, who is to blamed for the crisis and how it affects us.

1. Eurozone Debt Crisis
CAUSES, TIMELINE, EXTENT OF THE CRISIS,
HOW IT IS BEING ADDRESSED AND HOW
IT’LL AFFECT US

2. How the crisis unfolded?
 Euro was born when European Union became a single
economic zone.
 EU comprised of strong (Germany, France) as well as
weak (Greece, Portugal) economies.
 Euro being the single currency in the union, there was no
fear of local inflation, so banks lent indiscriminately.
 World economy was in good shape, so direct correlation
between economic and repayment strength was not
evident.
 Weaker economies of EU (PIIGS) overspent using
borrowed money.
 Now they are unable to pay back their debt.

3. What did the PIIGS do?
 Ireland underwent a massive real estate bubble, and its banks
sustained giant losses. The Irish government wound up
rescuing its banks, and now the country is burdened under a
huge debt load.
 Spain also experienced a huge housing bubble. The country
didn't indulge in excessive borrowing, rather, it ended up with
high deficits because it couldn't collect enough tax revenue to
cover its expenses.
 Greece not only borrowed beyond its means, but exacerbated
the problem with lots of overspending, little economic
production to make up the difference, and some creative
bookkeeping to prevent euro zone authorities from realizing
the true extent of the situation.
 Italy and Portugal have huge debt to GDP ratios, high
unemployment and are struggling with a weak economy.

4. And now…
 Given the huge size of the PIIGS debt, investors are
reluctant to buy bonds from European countries,
since many are in huge debts and others may have to
assume responsibility for the black sheep.
 We could be looking at depression for Europe and
recession for rest of the world.
 Uncertainty prevails as
 EU may break up
 Some countries may pull out of the EU
 Leading to a rash of ban failures

5. Timeline of the crisis
 1999-2008
 Euro is introduced, more countries join in.
 In Dec ‘08 EU leaders agree on a 200bn-euro stimulus plan to
help boost European growth following the global financial
crisis.
 2009
 Slovakia joins EU, Estonia, Denmark and others make
preparations to join.
 In April, the EU orders France, Spain, the Irish Republic and
Greece to reduce their budget deficits
 In December, Greece admits that its debts have reached 300bn
Euros; 113% of GDP, nearly double the EU limit of 60%.

6. Timeline of the crisis (contd…)
 2010
 Severe irregularities are found in Greece’s accounting
procedures.
 Talks start over austerity measures, sparking riots and protests
 Euro continues to fall against Dollar and Pound.
 In May, EU members and IMF agree on a 110 bn Euro bail-out
package for Greece.
 Ireland, Portugal, Spain, Italy come under review.
 In November, the EU and IMF agree to a bailout package to
the Irish Republic totaling 85bn Euros.
 The Irish Republic soon passes the toughest budget in the
country's history.

7. Timeline of the crisis (contd…)
 2011
 In February, eurozone finance ministers set up a
permanent bailout fund, called the European Stability
Mechanism, worth about 500bn euros.
 In April, Portugal admits it cannot deal with its finances
itself, leading to a 78bn-euro bailout.
 Greece approves fresh round of austerity measures, the EU
approves the latest tranche of the Greek loan, worth 12bn
euros.
 A second bailout of Greece is agreed upon, at 109 bn Euros.

8. Timeline of the crisis (contd…)
 2012
 S&P downgrades France and eight other euro zone countries,
blaming the failure of euro zone leaders to deal with the debt
crisis.
 Euro zone service sector shrinks, unemployment rates hit all
time high and European Commission predicts that the euro
zone economy will contract by 0.3% in 2012.
 Attention shifts to Spain and Italy, as they struggle to avoid
going the ‘Greece way’.

9. Extent of the Crisis: Debt as a % of GDP

10. Extent of the Crisis: Unemployment Rate

11. Extent of the Crisis: Projected GDP

12. Whose fault is it?
 “Irresponsible" countries who borrowed too much, taking advantage
of the low interest rates available to all euro member nations.
 The euro as a single currency cant meet the needs of 17 different
economies.
 Typically, a country's central bank can adjust a nation's money supply to
encourage or inhibit growth as a way of dealing with economic turmoil. However,
the nations yoked together under the euro frequently haven't had that option.
 If Spain and Germany hadn't both spent the last several years on the euro, for
example, then they wouldn't have been able to borrow at the same low interest
rates.
 If the PIIGS all still had their own individual currencies, they might be able to
export their way out of the mess they're in -- selling goods on the international
market until their respective situations were a little less dire
 The interconnectedness of the modern financial industry. Default by
Italy or a departure of the eurozone by a fed-up Germany , could
reverberate around the world.

13. What ‘s being done to avoid the crisis?
 Stronger economies are pushing for stringent
spending control guidelines, where a country’s
spending will be directly proportional to its
economic strength.
 Several options are being discussed, such as,
issuance of Euro Bonds, backed by the entire EU.
 Restructuring of debt, with strict austerity measures
placed on countries at risk of default.
 Troubled eurozone countries are pledging to cut back
government spending to show they can be trusted

14. How does it affect us?
 Stock market volatility.
 Financial institutions exposed to the debt will write it
down, affecting their bottom line.
 Borrowing will get costlier as interest rate will
remain high.
 As a result, spending will be less leading to a longer
recession.
 Weak consumption and spending in Europe spells
trouble for the rest of the world economy, that is
struggling to get out of the downturn.