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Euro Zone Crisis

Euro Zone Crisis. “ Today , there are three kinds of people: the have's, the have-not's, and the have-not-paid-for-what-they-have's .“ Earl Wilson. The Past Scenario. Euro- The common currency for

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Euro Zone Crisis

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  1. Euro Zone Crisis “ Today, there are three kinds of people: the have's, the have-not's, and the have-not-paid-for-what-they-have's.“ Earl Wilson

  2. The Past Scenario • Euro- The common currency for • Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain • Monetary Policy the responsibility of European Central Bank (ECB) • 2009- The fear of sovereign debt crisis • Culprits- Greece, Poland, Ireland • Crisis due to widening bond yields and risk insurance on credit default swaps

  3. The Current Scenario • 2, May 2010- IMF and Eurozone countries agreed for €110bn loan • 9, May 2010- EFSF set up by 27 EU states • Followed by €85bn debt for Ireland in Nov, 2010 and €75bn for portugal in May,2011 • May, 2011- Greek problem surfaces again • Greek Public reject austerity measures

  4. The story behind it…

  5. When and how did it start National debt rises to €262 bn from €168 bn 2004 Nov 2009 Greece unveils a stability programme Dec 2009 Eurozone finance ministers approve €30bn debt Jan 2010 S&P’s downgrade of Greece to junk status Apr 2010 Greece receives a €14.5 bn loan from the EU May 2010 Parliament passes pension reform July 2010

  6. The year 2011 • Fitch third rating agency to downgrade to “JUNK” • Greece unveils a series of privatizations, part of a goal to raise €50bn by 2015 • Head of the Eurozone finance ministers backs Germany's proposal for a "soft restructuring" of Greece's debt • The EU welcomes Greek parliament's vote in favor of a severe austerity package that has sparked strikes • Greece can now receive the latest €12bn tranche of a €110 bn loan, instead of defaulting • Eurozone finance ministers approve new bailout package for Greece worth €109bn

  7. Aftermath • Ireland, Portugal, Italy, Spain and France also undergo similar situations like Greece • Government Deficit for all these countries in negative as % of GDP • Public Debt to GDP more than 100% in most of these countries • 10 year government bond yields less than 5%

  8. HOW CREDIT RATINGS WORK?

  9. CREDIT RATING- WHAT IT MEANS •  Credit worthiness •  Financial indicator • Insurance premiums worth • Employment eligibility POOR RATING MEANS: • High risk • High interest rates

  10. HOW RATING IS DONE? •  Evaluation of qualitative and quantitative information  •  Not based on mathematical formulas •  Judgment and experience •  Political risk • Economic risk • Payment default risk

  11. THE BIG THREE • S & P • MOODY’S • FITCH

  12. Impact On India… • Mixed Reactions from India • “I don’t think India will be much affected beyond the temporary market jitters and we should still grow at 8.2%” - C. Rangarajan, chairman of Indian Prime Minister Manmohan Singh’s Economic Advisory Council • US and Euro credit rating downgrade may impact India's IT, gems & jewellery exports: FIEO(the Federation of Indian Exporters )

  13. Impact On India (contd) • Rupee value-getting stronger • Exports -In 2010-11 ,India exported $25.5 billion(from $225 billion )worth of goods to the Euro region

  14. Other Impacts…. • Gold • Surge in gold prices • Tourism • 8-10 per cent dip in total inbound tourists • Foreign Investments • India remains to be attractive destination

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