a very brief description on euro crisis

1. By:
Sanya Gulati
361

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. 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. 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. 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. 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. 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. 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. 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

11. 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

12. 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

13. 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

14. Bibliography
 www.newyorktimes.com
 www.google.com
 www.wikipidiea.com
 www.economicstimes.com