Euro Crisis - R Bays

The Euro €

What is the Euro?

The euro is the single currency shared

currently by 17 of the European Union's 27

Member States, which together make up the

euro area.

The introduction of the euro in 1999 was a

major step in European integration.

Approximately 330 million EU citizens now

use it as their currency.

The Euro

Which countries use the Euro?

EU countries using the euro EU countries not using the euro

The Euro

Which countries have adopted the euro - and when?

1999

Belgium, Germany, Ireland, Spain, France, Italy,

Luxembourg, the Netherlands, Austria, Portugal and

Finland

2001 Greece

2002 Introduction of euro banknotes and coins

2007 Slovenia

2008 Cyprus, Malta

2009 Slovakia

2011 Estonia

The Euro and Economic and Monetary Union

• All EU Member States form part of Economic and

Monetary Union (EMU), which can be described as

an advanced stage of economic integration based on

a single market.

• It involves close co-ordination of economic and fiscal

policies and, for those countries fulfilling certain

conditions, a single monetary policy and a single

currency – the euro.


• The process of economic and monetary integration in

the EU parallels the history of the Union itself.

• When the EU was founded in 1957, the Member

States concentrated on building a 'common market'.

• However, over time it became clear that closer

economic and monetary co-operation was desirable

for the internal market to develop and flourish further.


• But the goal of achieving the EMU including a single

currency was not enshrined until the 1992 Maastricht

Treaty (Treaty on European Union), which set out the

ground rules for its introduction.

• These state what the objectives of EMU are, who is

responsible for what, and what conditions Member

States must meet in order to adopt the euro.


• These conditions are known as the 'convergence

criteria' (or 'Maastricht criteria') and include:

1. Low and stable inflation

2. Exchange rate stability and

3. Sound public finances

The Euro

Who manages the Euro?

The European Central Bank

1) Ensures price stability

2) Controls money supply and decides interest rates

3) Works independently from governments

Mario Draghi

President of the Central Bank

Central Bankers

Bernard

Bernanke

Chairman of the

Federal Reserve

Mervyn King

Governor of the

Bank of England

Jean-Claude Trichet

President of the European

Central Bank

How Did It Happen?

Changing To The Euro

12 Original Eurozone Countries

Austria, Belgium, Finland, France, Germany,

Greece, Holland, Ireland, Italy, Luxembourg,

Portugal and Spain

*United Kingdom, Denmark and Sweden are

members of the European Union but NOT the

Eurozone.

Euro Time Line

January 1, 1999

• Euro is the currency of eleven countries

• Conversion rates irrevocably fixed

• Legislation on the euro entered into force

• Financial markets in euro

August 30, 2001

• European Central Bank releases final details of euro

banknote designs and features to the media and

public at a news conference in Frankfurt, Germany

Euro Notes

Euro Time Line

January 1, 2002

• “E-day” or Euro Day” when euro banknotes and coins will

be brought into circulation in the 12 participating states of

EU.

• All non-cash transactions will hereafter take place in

euros. All currency issued by participating national banks

and ATMs will be new euro banknotes and coins.

• Dual circulation period begins, in which consumers can

still use national currencies but will be given change only

in euros

Euro Public Opinion Poll

Country Pro-euro Against

Austria 59 32

Belgium 75 18

Denmark 40 56

Finland 49 46

France 67 28

Germany 53 38

Greece 72 22

Ireland 72 16

Italy 83 12

Luxembourg 81 15

Netherlands 66 30

Portugal 59 30

Spain 68 22

Sweden 29 62

UK 25 57

EU Overall 59 33

Advantages

• European countries saw the adoption of the Euro as a

way of creating world wide competition

• Integrate the European nations makes the union a strong

world power

• Strengthen Banking System

• European Central Bank would provide an institution of

monetary regulation comparable to the FED

Advantages

• Similarities between the European and United States

banking system

• The Euro would advance international trade

• Way to challenge the power of the US in foreign

exchange

• Inspire exporters to denominate their goods in euros as

well as dollars

• Single Monetary Policy

Inflation convergence – Slovakia

Annual percentage change in the consumer price index

Slovak Republic - Consumer Price Inflation

Slovak Republic Euro ZoneSource: Reuters EcoWin

99 00 01 02 03 04 05 06 07 08

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Per

cent

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Disadvantages

• Introduction of a single monetary policy among 12

individual national policies of each country

• Before joining the country controlled it’s own money

supply

• Monetary decisions with economic and national policies

unique for the circumstances of the country

• Surrender their individual policies on inflation,

unemployment, and economic growth

Disadvantages

• Implementation of one Monetary policy as a detriment to

their existing financial statuses

• Traveling around different countries will have different

prices for the same good or services

Why Do We Need The Euro?

• Apart from making travelling easier within the EU, a

single currency makes economic and political sense.

• The framework under which the euro is managed

underpins its stability, contributes to low inflation and

encourages sound public finances.

• A single currency is also a logical complement to the

single market and contributes to making it more efficient.

• Using a common currency increases price transparency,

eliminates currency exchange costs, facilitates

international trade and gives the EU a more powerful

voice in the world.


• The size and strength of the euro area also better

protect it from external economic shocks, such as

unexpected oil price rises or turbulence in the currency

markets. Last but not least, the euro gives the EU’s

citizens a tangible symbol of their European identity.

• Against the background of the current debt crisis

important measures to improve the economic

governance in the EU and the euro area in particular

have been taken.


• EU Member States have strengthened the Stability

and Growth Pact, introduced a new mechanism to

prevent or correct macroeconomic imbalances and are

increasingly coordinating structural policies.

• These are crucial steps to strengthen the "E" - the

economic leg - of the EMU and to ensure the success

of the euro in the long run.

How Did It Happen?

Eurozone Debt Crisis – What is it?

• This is also known as Eurozone sovereign debt crisis

• The term indicates the financial problems caused due to

overspending by come European countries

• When a nation lives beyond its means by borrowing

heavily, a point comes when it cannot manage its financial

obligations.

• When that country faces insolvency (unable to repay its

debts and lenders start demanding higher interest rates)

that nation begins to get swallowed up by what is known

as the Sovereign Debt Crisis

Eurozone Debt Crisis – History

• The EDC began in 2008 with the crash of Iceland’s

banking system, which spread to Greece.

• Greece had experienced corruption and spending as its

government continued borrowing money despite not

being able to produce sufficient income through work and

goods.

• It was admitted that Greece's debts had reached 300bn

euros, the highest in modern history

• Spain, Portugal, and the other nations later followed

Greece.

Eurozone Debt Crisis – History COUNTRIES STATISTICS

France Debt/G.D.P: 81.7% Unemployment. Oct 2011: 9.8% S&P Rating: AAA

Germany Debt/G.D.P: 83.2% Unemployment. Oct 2011: 5.5% S&P Rating: AAA

Greece Debt/G.D.P: 142.8% Unemployment. July 2011: 18.3% S&P Rating: CC

Italy Debt/G.D.P: 119% Unemployment. Oct 2011: 8.5% S&P Rating: A

Portugal Debt/G.D.P: 93% Unemployment. Oct 2011: 12.9% S&P Rating: BBB-

Spain Debt/G.D.P: 60.1% Unemployment. Oct 2011: 22.8% S&P Rating: AA

The main European countries

affected in the European Debt

Crisis are:


GREECE

• November 5 2009-Greece reveals that their budget deficit is

1207 percent of GDP

• December 8 2009- Greece's long-term debt to BBB+, from A-.

• March 3 2010- Greece tries to persuade the financial market that

they can repay their debts

• April 23 2010- Papandreou asks help from International

Monetary Fund after Greece is priced out of the international

bond markets.


GREECE

• May 2 2010- European finance ministers lend €110bn

which covers until 2013. Greece pledges to bring its

budget deficit into line, through unprecedented budget

cuts.

• April 17 2011- Greek borrowing costs start rising sharply

again, on fears that its austerity measures are failing to

work. Greece is now deep in recession.

• June 19 2011- Admits that they need to borrow money

again


GREECE

• June 29, 2011- EU leaders agree on €109bn bailout –

which will see private sector lenders take losses of 20%

• October 27 2011- Europe leaders agree new deals that

slash Greek debt and increase the power of the main

bailout fund to around €1 trillion.

• November 6 2011- Prime Minister resigns

The Greek budget deficit - never got below the 3%

of GDP limit, nor did the debt ever decline toward the 60% limit

32


SPAIN

• The country's public debt relative to GDP in 2010 was

only 60%

• As one of the largest euro zone economies, the condition

of Spain's economy is of particular concern to

international observers, and faced pressure from the

United States, the IMF, other European countries and the

European Commission to cut its deficit more aggressively


SPAIN

• Spain succeeded in minimizing its deficit from 11.2% of

GDP in 2009 to 9.2% in 2010 and around 6% in 2011

• To build up additional trust in the financial markets, the

government amended the Spanish Constitution in 2011

to require a balanced budget at both the national and

regional level by 2020

• The amendment states that public debt cannot exceed

60% of GDP


PORTUGAL

• In the first quarter of 2010 Portugal had one of the best

rates of economic recovery in the EU.

• A report was released that the Portuguese government

public debt has increased due to mismanaged

structural and cohesion funds which then resulted to the

verge of bankruptcy of the country.

• Bonuses and wages of head officers also resulted to

their economic situation


PORTUGAL

• May 16 2011- Eurozone leaders officially approved a

€78 billion bailout package for Portugal, which became

the third Eurozone country, after Ireland and Greece, to

receive emergency funds.

• As part of the deal, the country agreed to cut its budget

deficit from 9.8 percent of GDP in 2010 to 5.9 percent in

2011, 4.5 percent in 2012 and 3 percent in 2013.

• July 6 2011- Rating’s agency Moody had cut Portugal’s

credit rating to junk status

Europe's response to the economic crisis

Coordinated response from the EU's national governments, the

European Central Bank and the European Commission:

A. Commitment to the euro and to financial stability

B. New crisis management tools and reforms of rules:

1. European Stability Mechanism: fund to help extraordinary economic difficulties

2. EU-wide financial supervisory authorities, new laws for stability of banks

C. Better economic governance:

1. European Semester: annual procedure to coordinate public budgets

2. Euro+ pact, "Fiscal compact treaty” : mutual commitments to sound public finances


The ECB reduces interest rates to historically low levels (1.25%) and begun

“quantitative easing”

Dec 08: EU governments adopt European Economic Recovery Plan - a

coordinated fiscal stimulus

Oct 08: euro area governments adopt concerted action plan to support their financial systems


Conclusion:

• Emergency loans have been extended as bailouts mainly

by stronger economies like France and Germany, as also

by the IMF.

• The EU member states have also created the European

Financial Stability Facility (EFSF) to provide emergency

loans.

• Restructuring of the debt

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Lessons Learned

• Be careful who you admit to the EU

• Use caution in leveraging funds

QUESTIONS????

http://www.animationfactory.com/

Contact Infomation

Richard Bays JD, MBA, RN, CPHQ [email protected]

+49 01796557037

+1 832.316.2701

Presented for the European School of

Management and Technology (ESMT)

Berlin, Germany 2013

Euro Crisis - R Bays

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