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Euro crisis indv

a very brief description on euro crisis

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Euro crisis indv

  1. 1. By: Sanya Gulati 361
  2. 2. Introduction  Concept of using single currency  To join the currency, member states had to qualify by meeting the terms of the treaty in terms of budget deficits, inflation, interest rates and other monetary requirements  In 2001 Greece joins the euro
  3. 3. More companies join in..  In 2009 Slovakia joins the euro  Estonia, Denmark, Latvia and Lithuania join the Exchange Rate Mechanism to bring their currencies and monetary policy into line with the euro in preparation for joining  In April, the EU orders France, Spain, the Irish Republic and Greece to reduce their budget deficits - the difference between their spending and tax receipts
  4. 4. Availability of capital  Before the Euro currency acceptance Drachma was devalued and helped in borrowing  Greece was able to continue its high level of borrowing because of the lower interest rates that government bonds in Euros could command  Problem was caused after 2008 great recession, the main contributors to GDP – Shipping and Tourism were affected badly, revenues fell nearly 15% in 2009
  5. 5. Under-Valuation  In November, concerns about some EU member states' debts start to grow following the Dubai sovereign debt crisis  In December, Greece admits that its debts have reached 300bn euros -the highest in modern history  Greece is burdened with debt amounting to 113% of GDP - nearly double the eurozone limit of 60%
  6. 6. The “debt”  Greece is burdened with debt amounting to 113% of GDP - nearly double the eurozone limit of 60%  In January, an EU report condemns “Severe irregularities in greek accounting procedures”  Greece's budget deficit in 2009 is revised upwards to 12.7%, from 3.7%, and more than four times the maximum allowed by EU rules
  7. 7. Grants  The eurozone and IMF agree a safety net of 22bn euros to help Greece - but no loans  In April, following worsening financial markets, eurozone countries agree to provide up to 30bn euros in emergency loans  Greek borrowing costs reach yet further record highs. The EU announces that the Greek deficit is even worse than thought after reviewing its accounts - 13.6% of GDP, not 12.7%
  8. 8. Cont..  Finally, the eurozone members and the IMF agree a 110bn-euro bailout package to rescue Greece  Talk abounds that Greece will be forced to become the first country to leave the eurozone  The eurozone agrees a comprehensive 109bn-euro package designed to resolve the Greek crisis and prevent contagion among other European economies(a 2nd bailout)
  9. 9. Impact on Global Financial System  Euro binds 19 nations into a single currency zone watched over by the European Central Bank but leaves budget and tax policy in the hands of each country  Since Greece’s debt crisis began in 2010, most international banks and foreign investors have sold their Greek bonds and other holdings  Other crisis countries in the eurozone Portugal, Ireland and Spain, have taken steps to overhaul their economies and are much less vulnerable to market contagion
  10. 10. How did Greece get to this point?  Greece became the epicenter of Europe’s debt crisis after Wall Street imploded in 2008  With global financial markets still reeling, Greece announced in October 2009 that it had been understating its deficit figures for years  Greece was shut out from borrowing in the financial markets  By the spring of 2010, it was veering toward bankruptcy, which threatened to set off a new financial crisis
  11. 11. Cont ..  To avert calamity , the International Monetary Fund, the European Central Bank and the European Commission — issued the first of two international bailouts for Greece(>240 billion euros)  Lenders imposed harsh austerity terms, requiring deep budget cuts and steep tax increases. They also required Greece to overhaul its economy by streamlining the government, ending tax evasion
  12. 12. What if Greece left the Euro Zone?  If Greece defaulted on its debt and exited the eurozone, they argued, it might create global financial shocks bigger than the collapse of Lehman Brothers did  Greece, just a tiny part of the euro zone , the eurozone would actually be better off without a country that seems to constantly need its neighbors’ support
  13. 13. Bibliography    