eurozone crisis: a peek into the sovereign debt crisis
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BY HARVINDER SINGH
IBADAT SINGH SETHI
MEENAKSHI PANDITA
NARDEEP KOUR
*EUROZONE CRISIS
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*EUROZONE
*INTRODUCTION
*ESTABLISHMENT
Euro Zone was formed on 1st Jan,1999
Euro was adopted as common currency by the members of Euro Zone in 2002
* ADVANTAGES OF ADOPTING COMMON
CURRENCY
• Increases competition
• cost of exchanging currency decreases
• Exchange Rate Risk reduces
• Boosts Trade
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*CRITERIA FOR JOINING EURO ZONELOW INFLATION RATE GOVERNMENT FINANCEEXCHANGE RATE LOW LONG TERM INTEREST RATES
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*MEMBER STATES
*17 STATES OF EUROPEAN UNION ARE IN THE EUROZONE
Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Malta, Netherlands, Luxembourg, Slovakia, Portugal, Spain and Slovenia
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*NON MEMBER USAGE OF EURO
Monaco, San Marino, and Vatican City
*EXPULSION AND SECESSION
*ADMINISTRATION AND REPRESENTATION
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*EUROZONE CRISIS
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*CAUSES
*NO PENALTIES
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*INTEREST RATES
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* LACK OF ECONOMIC GROWTHS AND HIGH UNEMPLOYMENT
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*EUROZONE BANKING SYSTEM
*TRADE IMBALANCES
*GLOBAL ECONOMY
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*STRUCTURAL PROBLEM OF EUROZONE SYSTEM
*A MONETARY UNION WITHOUT A FISCAL UNION
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*LOSS OF INTEREST
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* IMPACT ON WORLD ECONOMIES
*USA
*JAPAN
*CHINA
*RUSSIA
*BRAZIL
*IMPACT ON SUB-SAHARAN AFRICA
*IMPACT ON NORTH AFRICA AND MIDDLE EAST
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*IMPACT ON EMERGING MARKETS
*DROP IN TRADE FINANCE
*BANKS ARE BECOMING INCREASINGLY RELUCTANT
*TRADE FINANCE VOLUME FELL TO $26.8BN
*NEW BANKING RULES
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*S&P’s RATING
COUNTRY CURRENT LONG TERM RATING PREVIOUS LONG TERM RATING
2 Notches Down
Cyprus BB+ BBB
Italy BBB+ A
Portugal BB BBB-
Spain A AA-
1 Notch Down
Austria AA+ AAA
France AA+ AAA
Malta A- A
Slovakia A A+
Slovenia A+ AA-
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*EFFECT ON US
*US DOLLAR HAS RISEN
1 JAN. 2010 1£ = 1.43$
29 SEPT. 2012 1£= 1.2857$
*LESS EXPORT
*US EXPORTS FELL FROM 15% TO 11%.
*TRADE DEFICIT INCREASED TO $52.7 bn.
*BANKS NOT ABLE TO REPAY
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*EFFECT ON JAPAN
*1 JAN. 2010 1£ = ¥133.256
29 SEPT. 2012 1£ = ¥100.2828
* JAPAN’S ECONOMY HIT BY TSUNAMI, AN EARTHQUAKE AND NUCLEAR DISASTER
*JAPAN HAS A HUGE DEBT $12.19 TRILLION
*TRADE FELL BY 207%
*INVESTORS STILL INTERESTED
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*EFFECT ON RUSSIA
* RUSSIA’S ECONOMY GREW 4% IN 2010 AND 4.1% IN 2011
*HOWEVER FOREIGN INVESTMENTS REDUCED
*ECONOMY GREW BECAUSE OF HIGH OIL PRICES
$61.80 to $104 FROM 2009 TO 2011
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*EFFECT ON CHINA
*1/5TH OF CHINA’s EXPORTS GO TO EUROPE
*CHINESE YUAN INCRESED BY 23% AGAINST THE EURO
*EXPORTS FELL TO 15.2%
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*EFFECT ON BRAZIL
*ECONOMIC GROWTH DECLINED FROM 7.5% IN 2010 TO 2.7% IN 2011
*43% INCREASE EXPORTS TO CHINA
*17 % EXPORTS GO TO CHINA
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*EFFECT ON SUB-SAHARAN AFRICA
*COUNTRIES SUCH AS ETHIOPIA, KENYA, AND GHANA WERE PROTECTED
*SOUTH AFRICA, BOTSWANA, AND SWAZI FELL FROM 3.5% IN 2010 TO 3.1% IN 2011
*LESS SHARE AS EXPORTS DECREASED FROM 40% IN 2002 TO LESS THAN 25% AT THE END OF 2010
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*EFFECT ON NORTH AFRICA
AND MIDDLE EAST
*TUNISIA (80%), MOROCCO (65%), AND EGYPT (40%) EXPORTS 80%, 65%, AND 40% OF THEIR MANUFACTURED GOODS
*CRISIS SLOW ECONOMIC GROWTH AND REDUCE GLOBAL DEMAND FOR OIL
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*IMPACT ON INDIA
*IMPACT OF CRISIS ON INDIA
1. Share of Indian exports as compared to the advanced economies is decreased drastically.
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2. Contraction in the manufacturing sector.
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3. Share of EU countries in India’s total exports
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4. Indian Software Sector
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5. Impact on Foreign Direct Investment (FDI)
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6. Impact on Foreign Institutional Investment(FII)
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7. Exchange Rate Depreciation(ERD)
Since the global uncertainties aggravated, the Indian exchange rate has depreciated (12.1%) against the Euro during the current financial year.
The depreciating rupee adds further pressure on domestic inflation and India’s import bills.
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*SUGGESTIONS
* PUBLIC EXPENDITURE
*FISCAL POLICIES AND MONETARY POLICIES
*FOREIGN INVESTORS
*HOME INVESTORS
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*THANK YOU