Post on 06-Apr-2018
8/3/2019 GROUP 3 SI Europe Crisis
1/21
Europe Crisis: How this could be
resolved
Strategy Implementation
-Prof. R Kannan
Group 3
021 - Deepak R. Divecha
025 Vishal Doshi
032 Ratna Gandhi
056 Arnab Maiti061 Sameer Mayekar
077 Deepti Patel
090 Ranjith Bhanu
110 Pooja Thawani
1
8/3/2019 GROUP 3 SI Europe Crisis
2/21
Content
2
Basic Information on EU
Objective:
Understand the Europe Crisis, what is the status of the same currently,
why is it like that and how it can be resolved
The Outlook (what part of objective)
Cause (Why part of objective)
Recommendation (How part of objective)
8/3/2019 GROUP 3 SI Europe Crisis
3/21
Brief Information European Union
3
1945 1959: A Peaceful Europe: the beginning of co-operation
The European Union is set up with the aim of ending the frequent and bloody
wars between neighbours, which culminated in the Second World War. As of
1950, the European Coal and Steel Community begins to unite European countries
economically and politically in order to secure lasting peace. The six founders are
Belgium, France, Germany, Italy, Luxembourg and the Netherlands
1960 1969: The Swinging Sixties: a period of economic growth
It is a good period for the economy, helped by the fact that EU countries stop
charging custom duties when they trade with each other. They also agree joint
control over food production, so that everybody now has enough to eat - and
soon there is even surplus agricultural produce
1970 1979: A Growing Community: the first enlargement
Denmark, Ireland and the United Kingdom join the European Union on 1 January
1973, raising the number of member states to nine
8/3/2019 GROUP 3 SI Europe Crisis
4/21
Brief Information European Union
4
1980 1989: The Changing Face Of Europe: the fall of Berlin Wall
In 1987 the Single European Act is signed. This is a treaty which provides the basis
for a vast six-year programme aimed at sorting out the problems with the free-
flow of trade across EU borders and thus creates the Single Market
1990 1999: A Europe without Frontiers
With the collapse of communism across central and eastern Europe, Europeans
become closer neighbours
2000 today: A decade of further expansion
Euro became the new currency
8/3/2019 GROUP 3 SI Europe Crisis
5/21
Brief Information Europe Union
5
Member states of the EU (year of entry)Year Country Year Country Year Country
1952 Belgium 1981 Greece 2004 Hungary
1952 France 1986 Portugal 2004 Latvia
1952 Germany 1986 Spain 2004 Lithuania
1952 Italy 1995 Austria 2004 Malta
1952 Luxembourg 1995 Finland 2004 Poland
1952 Netherlands 1995 Sweden 2004 Slovakia
1973 Denmark 2004 Cyprus 2004 Slovenia
1973 Ireland 2004 Czech Republic 2007 Bulgaria
1973 United Kingdom 2004 Estonia 2007 Romania
8/3/2019 GROUP 3 SI Europe Crisis
6/21
Outlook Europe Crisis
6
8/3/2019 GROUP 3 SI Europe Crisis
7/21
7
Outlook Europe Crisis
The euro-zone is facing the dangerous combination of a sovereign debt and banking
crisis. Politicians, economists and central bankers are attempting to solve this but the
outcome will not be clear for some time meanwhile the noise and uncertainty
continues.
So far:
Banks have been told to prepare contingency plans for the break up of the eurozone ,
some are at risk from the current instability in European capital markets.
Stronger austerity measures are being introduced that will impact both government
spending and are already changing consumer behaviour in the countries affected.
Capital is moving towards safer havens as Euro deposits are reduced and transferred
away.
Risk of disruption, unrest and fraud have all increased in the most affected countries.
Large number of European companies face the challenge of refinancing their activities
in the face of this crisis over the next 12 months.
8/3/2019 GROUP 3 SI Europe Crisis
8/21
Outlook Europe Crisis
8
Head of the IMF says there is a risk of a 'lost decade'
David Cameron warns crisis is placing Britain in 'clear and present danger'
Italy debt is so large it cannot be bailed out
Markets across the globe fall in response to the news
Worries France could be next country to fall victim
The size ofItalys debts mean it is widely considered too big to bailout, unlike Greece,
Ireland and Portugal.
There is not enough cash in a eurozone bailout fund even for an initial rescue package,
which economists believe would cost at least 550billion
As the debt crisis in Italy escalated, the euro fell 2.2 per cent against the U.S. dollar in its
worst one-day fall for 15 months
8/3/2019 GROUP 3 SI Europe Crisis
9/21
Causes Europe Crisis
9
Eurozone had agreed in 1997, to the
same limit their governments' borrowing
each year to just 3% of their economies'
output
Italy was the worst offender. It regularly broke the 3% annual borrowing limit. But actually Germany -
along with Italy - was the first big country to break the 3% rule. After that, France followed. Of the big
economies, only Spain kept its nose clear until the 2008 financial crisis; the Madrid government stayed
within the 3% limit every year from the euro's creation in 1999 until 2007
The eurozone has
agreed a new "fiscal
compact"
Eurozone leaders have
agreed to a tough set of
rules - insisted on by
Germany - that will limit
their governments'
borrowing each year to
just 3% of their
economies' output
8/3/2019 GROUP 3 SI Europe Crisis
10/21
Causes Europe Crisis
10 List your points here..we can consolidate
But the debt had nothings to do
with govt borrowings, private
sector as seen in bar graph was
borrowing. . Instead it was the
private sector - companies and
mortgage borrowers - who were
taking out loans. Interest rates hadfallen to unprecedented lows in
southern European countries when
they joined the euro. And that
encouraged a debt-fuelled boom
The borrowing graph actually
shows the Germany is safe
heaven market despite of high
borrowings and Italy & Spain in
trouble.
8/3/2019 GROUP 3 SI Europe Crisis
11/21
Causes Europe Crisis
11
Imbalance struck: things went in
favor of Germany and had
adverse effect on southern
europe:
Germany became an export
power-house after the eurozone
was set up in 1999, selling far
more to the rest of the world(including southern Europeans)
than it was buying as imports.
That meant Germany was earning
a lot of surplus cash on its
exports. And guess what - most of
that cash ended up being lent to
southern Europe
But debts are only part of the problem in Italy and Spain.
During the boom years, wages rose and rose in the south
(and in France). But German unions agreed to hold their
wages steady. So Italian and Spanish workers now face a
huge competitive price disadvantage
8/3/2019 GROUP 3 SI Europe Crisis
12/21
Outlook Europe Crisis
12
Nasty dilemma: the government borrowing had very little to do with the current crisis in
eurozone. So to recap, government borrowing - which has ballooned since the 2008 global
financial crisis - had very little to do with creating the current eurozone crisis in the first
place, especially in Spain (Greece's government is the big exception here). So even if
governments don't break the borrowing rules this time, that won't necessarily stop a
similar crisis from happening all over again.
Spain and Italy are now facing nasty recessions, because no-one wants to spend.
Companies and mortgage borrowers are too busy repaying their debts to spend more.
Exports are uncompetitive. And now governments - whose borrowing has exploded since
the 2008 financial crisis savaged their economies - have agreed to drastically cut their
spending back as well
Cut Spending
...and you are pretty sure to deepen therecession
Do NOT Cut Spending
... ...and you risk a financial collapse
8/3/2019 GROUP 3 SI Europe Crisis
13/21
Causes Europe Crisis
13
The Making of a Crisis
1. Confidence in the prospects for growth and stability of the economies of Greece,
Ireland, Italy, Portugal, and Spain (GIIPS) surged when the euro was introduced,
causing their interest rates to decline to those of Europes more stable members.
2. Improved confidence and lower interest rates drove up domestic demand in the GIIPS
and investors and consumers have increased spending and run up debts, often owed
abroad as foreign capital flowed in.
3. Growth accelerated and the prices of domestic activities rose relative to the price of
exportable or importable products, attracting investment into the less productive non-
tradable sectors and away from exports and industries competing with imports.
4. Meanwhile, exports rose sharply as a share of GDP in Germany due to Growingdemand in the GIIPS enabled these core countries to increase exports. The adoption of
a common currency made their exported goods more affordable.
8/3/2019 GROUP 3 SI Europe Crisis
14/21
14
Causes Europe Crisis
5. The domestic demand boom in the GIIPS induced rapid wage growth that outpaced
productivity, increasing unit labor costs and eroding external competitiveness further.
6. The emergence of China, as well as currency depreciation and rapid labor productivity
growth in the export sectors of the United States and Japan, added to the
competitiveness problems of the GIIPS.
7. The single European monetary policy was too loose for the rapidly growing GIIPS
(Spain, Greece, and Ireland) and too tight for Germany, whose domestic demand and
wages grew very slowly compared to the European average. This reinforced the loss of
competitiveness in the GIIPS.
8. Lower borrowing costs and the expansion of domestic demand boosted tax revenues
in the GIIPS. Instead of recognizing this as temporary revenue and saving the windfall
gains for when growth slowed, GIIPS governments significantly increased spending.
Blatant fiscal mismanagement added to the problems in Greece.
8/3/2019 GROUP 3 SI Europe Crisis
15/21
15
Company Strategy
To Survive Europe Crisis
Five practical strategies
In our view there are five key areas in which to take action:
Act Now:
1. Immediate defensive actions
2. Immediate trading response
Plan Now:
3.Continuity and contingency planning
4.Group-wide consequences
5.Advantage from operating in a fundamentally different environment
8/3/2019 GROUP 3 SI Europe Crisis
16/21
16
Company Strategy
To Survive Europe CrisisAct Now:
1. Immediate defensive actions:-
Act to minimise risk and increase balance sheet resilience in the event of a large scale
default and Euro exit scenarios this includes a wide range of treasury actions,
reviewing financing and funding positions.
Change policy and process to enhance the visibility and control of credit exposures by
country and customer. Review policies and contractual terms for customers and
suppliers when writing new business.
Reassess critical suppliers for failure risk & develop appropriate mitigation plans.
Amend appropriate controls and authority levels.
Consider what business processes are required to ensure that the management team
is able to monitor the situation as it develops, take decisions quickly and communicate
effectively and widely.
Prepare contingency and continuity plans.
8/3/2019 GROUP 3 SI Europe Crisis
17/21
17
Company Strategy
To Survive Europe CrisisAct Now:
2. Immediate Trading response:-
Grip cash flow. Have cash flow forecasts to give the best possible forward
visibility of cash inflow and outflow in affected countries.
Respond to the changing market and act to protect cash flow and
profitability in affected countries. This includes considering routes to market,
terms of business with customers and suppliers and changes in pricing and
product mix.
Review budgets and business plans.
Prepare response plans now and do not leave the planning until trading has
fallen off.
8/3/2019 GROUP 3 SI Europe Crisis
18/21
18
Company Strategy
To Survive Europe CrisisPlan Now
3.Continuity and contingency planning :-
Plan for the worst. With the level of uncertainty, business continuity and contingency
plans should be revisited or created.
Produce triggered response plans. Given the range of possible outcomes it is notpractical to create a contingency plan for each one
Implement appropriate governance. Decision structures and governance for
controlling and monitoring the situation are often overlooked but vital.
8/3/2019 GROUP 3 SI Europe Crisis
19/21
19
Company Strategy
To Survive Europe Crisis
Further:
75 % of the 20-64 aged population should be employed
3 % of EU GDP to be invested in R & D
8/3/2019 GROUP 3 SI Europe Crisis
20/21
References
20
http://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/
Advisory/eurozone-crisis-five-practical-strategies.pdf
http://europa.eu/about-eu/eu-history/index_en.htm
http://www.bbc.co.uk/news/business-16301630
http://www.dailymail.co.uk/news/article-2058868/Italy-economic-crisis-Fears-UK-
dragged-second-recession.html
india@10.blogspot
8/3/2019 GROUP 3 SI Europe Crisis
21/21