What is European Union? • The economic association of over two dozen European countries which seek to create a unified, barrier-free market for products and services throughout the continent, as well as a common currency with a unified authority over that currency. Source:http://www.investorwords.com/1775/European_Union.html#ixzz2kWrnCF3L
Members of European Union (28 Countries): • Austria (1995) • Belgium (1952) • Bulgaria (2007) • Croatia (2013) • Cyprus (2004) • Czech Republic (2004) • Denmark (1973) • Estonia (2004) • Finland (1995) • France (1952) • Germany (1952) • Greece (1981) • Hungary (2004) • Ireland (1973) • Italy (1952) • Latvia (2004) • Lithuania (2004) • Luxembourg (1952) • Malta (2004) • Netherlands (1952) • Poland (2004) • Portugal (1986) • Romania (2007) • Slovakia (2004) • Slovenia (2004) • Spain (1986) • Sweden (1995) • United Kingdom (1973)
RECESSION • a period of two quarters of negative GDP growth.
European Recession: “GDP fell by 0.2% in the eurozone (0.1% for the EU) compared with the previous quarter, but most importantly, it fell by 1.0% (0.7% for the EU) compared with the same quarter of the previous year.” – Kissas (2013) SOURCE: file:///D:/My%20Documents/Downloads/asd.PDF
Inflation • An increase in the general level of prices of goods and services in an economy • The inflation rate in the Euro area was recorded at 0.70 percent in October of 2013. The measure of inflation is maintained and monitored by Eurostat. • The inflation rate is calculated using the weighted average of the Harmonised Index of Consumer Price (HICP) aggregates.
EURO AREA INFLATION RATE • During the start of recession in 2008, inflation rate started to fall. • The inflation rate In the Euro Area was recorded at 0.50 % in March of 2014
Euro Area Unemployment Rate • During the start of recession in 2008, unemployment rate started to rise. • Unemployment Rate remained unchanged at 11.90 percent in February of 2014 from 11.90 percent in January of 2014.
Euro area- Deficit or surplus (as a % of GDP) • Cash surplus/deficit (% of GDP) was last measured at -3.25 in 2011, according to the World Bank. • Cash surplus or deficit = revenue (including grants) - expense - net acquisition of nonfinancial assets
EURO AREA GOVERNMENT DEBT TO GDP • Debt-to-GDP ratio is the amount of national debt a country has in percentage of its Gross Domestic Product.
EU Countries Under Severe Recession SPAIN CYPRUS PORTUGAL ITALY IRELAND GREECE
CRISIS IN CYPRUS • Started on 2009 • Mild recession • Increasing budget deficit • Large falls in tourism ad shipping sector • Increase in unemployment rate
UNEMPLOYMENT • Unemployment Rate in Cyprus increased to 16.70 % in February of 2014 from 16.50 percent in January of 2014
2010-2011 • Short period of recovery
2012: another period of recession • Political factors • Communist government is not compatible with a market economy
Economic Factors • Mari explosion • Increasing wealth but decreasing income • Exposure to Greek debt • 5M Euros were written down.
INFLATION • The inflation rate (Feb., 2014): -2.58 %
DEBT-TO-GDP RATIO • Cyprus recorded a Government Debt to GDP of 86.60% of GDP in 2012. • Sources of debts: 2012, Russian emergency loan
FORECAST • Recession is expected to ease in 2014 and growth will start on 2015. • Positive contribution of net trade: shrinking of imports and lesser fall of in exports. • Further increase in debt-to-GDP ratio.
EUROZONE-IMF DEAL 10B Euros Bailout Loan • Recapitalization of financial structure • Anti-money laundering in financial institutions. • Financial consolidation to lessen budget deficit • Structural reforms to restore economic imbalances • Privatization program
A graph showing Italy's GDP growth from 2000 to 2012 (including forecasts for 2013) compared with EU's GDP growth.
A graph which shows the current account balance of Italy (% of GDP) from 1980 to 2012 (IMF data).
EconomicCrisis 2011 • Debt levels became unsustainable, and taxes in a contracting economy are no longer enough to pay the bills. • The ECB also started buying government bonds on the secondary market in order to keep borrowing costs low. • Political intervenes (Silvio Berlusconi) PM • Has an incredible level of public debt (120% ). • Imposed Higher taxes rate • Frequent Strikes are held
Economic Crisis 2012 • first quarter of 2012, GDP shrank 1.4% year on year and last month, the lowest rate among more than 40 countries for which it made forecasts.
EconomicCrisis 2013 • Political worries and interventions about the PM. • Eurozone crisis: political worries in Spain and Italy send markets tumbling • Investors alarmed by corruption scandal around Spanish PM Mariano Rajoy and polls showing gain by Silvio Berlusconi
Solution • Making visible process towards passing new economic reforms. • ECB made two rate cuts despite high inflation numbers and undertaken various non-standard measures.
Yields on Italian (red) and Spanish (green) 2-year bonds after the most recent ECB measures
The current account is an important indicator about an economy's health. • A positive current account balance indicates that the nation is a net lender to the rest of the world, while a negative current account balance indicates that it is a net borrower from the rest of the world.
How did this evolve?
Pre 2008 Era • Beginning of the global financial crisis • Shipping and tourism industry affected by the changes in business cycle • Debt began to pile up rapidly • Capital inflows were not used to help the economy grow 2000 2004 2008 Source: http://www.slideshare.net/praveenmr1989/greece-financial-crisis-case-study
Post 2008 Era • Global financial crisis of 2008-09 strained public finances • Fear of European sovereign debt crisis started in early 2010 • Difficulty in raising funds • Bailout package requested from EU & IMF • Debt rating downgraded to “Junk” status. 2008 2012 Source: http://www.slideshare.net/praveenmr1989/greece-financial-crisis-case-study
What’s the way out?
Measures adopted • Bailout package • Rescue package • European Stability Mechanism • Austerity Measures Source: http://www.slideshare.net/praveenmr1989/greece-financial-crisis-case-study
Where is the bailout going? Source: http://randomchaliceblog.blogspot.com/2012/03/greece-debt-deal-only-pause-before.html
European Stability Mechanism (ESM) • an international organization that provides instant access to financial assistance programs for member states of the eurozone in financial difficulty, with a maximum lending capacity of €500 billion.
Austerity measures • refer to official actions taken by the government, during a period of adverse economic conditions, to reduce its budget deficit using a combination of spending cuts or tax rises.
Source: http://www.slideshare.net/praveenmr1989/greece-financial-crisis-case-study Increase of retirement age from 60 to 65 Luxury tax increased by 10% 45% IncomeTax New duties levied on Petrol 40% Big cuts in public employee expenditures Reduction in number of Municipalities New tax is levied on electricity charges Duties on imported cars increased by 30% 23% VAT 19%
Unemployment Source: Trading Economics
7 out of 10 considered working abroad • Economy’s biggest problem • Due to long-term unemployment Source: http://www.slideshare.net/praveenmr1989/greece-financial-crisis-case-study