evolution of euro.pptEvolution of EURO & Euro Crisis

7/28/2019 evolution of euro.pptEvolution of EURO & Euro Crisis

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Evolution of EURO &

Euro Crisis
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Table of Contents

Introduction

Objectives

Member Countries

Criteria for Joining the euro

Euro Crisis
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Introduction

History of EURO

Established by the provisions in the 1992 Maastricht Treaty. In order toparticipate in the currency, member states are meant to meet strict

criteria .

The name euro was officially adopted on 16 Dec1995

Introduced to world financial markets as an

accounting currency on 1 Jan 1999.

The official currency of 16 of the 27 member states

of the European Union (EU).
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Introduction

Managed and administered by the Frankfurt based

European Central Bank (ECB)

Common designs on both sides

Freely used in any nation which has adopted

the euro
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OBJECTIVES OF THE EUIts principal goal is to promote and expand cooperation amongmember states in economics, trade, social issue, foreign policy,security, defense, and judicial matter.

EU has sought out to meet its objective in three ways:

By defining a common commercial policy.

By reducing economic differences between its richer and poorermembers.

By stabilizing the currencies of its members.


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Member Countries

1951 Founding Members Belgium

France

Germany

Italy

Luxembourg

The Netherlands

1973

Denmark

Ireland

The United Kingdom

1981

Greece

1986

Portugal

Spain

1990

East Germany

1995 Austria

Finland

Sweden

2004

Cyprus

Czech Republic

Estonia

Hungary

Latvia

Lithuania

Malta

Poland

Slovakia Turkey

Croatia


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Criteria for Joining the euro,

Economic & Monetary Union Inflation: Not to exceed 1.5% points of the

average of the best three performing countries

Interest Rates: Not to exceed 2% points of theaverage of the best three performing countries

Fiscal Deficit/GDP ratio: Not to exceed 3%

Public Debt/GDP ratio: Not to exceed 60%.


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Criteria of EU

Criteria I Applicant countries must have stable institutions

that guarantee democracy, the rule of law, human

rights, and protection of minorities (the politicalcriteria)


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Criteria of EU (Cont.)

Criteria II

Applicant countries must have a functioningmarket economy, and the capacity to cope

with competitive pressures (the economiccriteria)


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Criteria of EU(Cont.)

Criteria III

Applicant countries must have the ability totake on the obligations of membership (to

apply effectively EU rules and policies)


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Euro Crisis


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Introduction to Euro Zone

crisis It is the biggest challenge Europe has faced since 1990.

Due to global financial crisis that began in 2007-08 the euro zone enteredits first official recession in third quarter of 2008.

The national debt of Greece was put at 300 billion ($413.6 billion), whichis bigger than the country's economy.

On 11 Oct 2008, a summit was held in Paris by the Euro group heads of

state and Govt. , to define a joint action plan for euro zone and centralbanks of Europe to stabilize the economy.


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Beginning of Crisis

Started in Oct 2009 in Greece

Its immediate causes lie with the US crisis of 2007-09.

The result in Euro Zone was Sovereign debt crisis.

PIIGS: Portugal, Italy, Ireland, Greece, Spain.

Greece allowed deficits from Central bank and government bondsto pile up. Greece debt came to light in 2009.


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What Happened and Why?

Greece: Sharp Budget Deficit

Large government and External Debts in PIIGS.

Greece credit rating downgraded.

Interest rates surged on government bonds.

Need for external aid from EU and IMF

The high debts and rising rate of interests was a matter of concern.


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Reasons for rise in External Debts

High household indebtness.

Large current account deficit:

Excessive growth in domestic demand.

Increase in wage rates.

Lower exchange rate risk.

Weakening export competitiveness. Reasons for rise in Internal Debts:

Rising Unemployment: Lower tax returns,

higher budget deficits.


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Resolutions

European governments and the

International Monetary Fund (IMF) have

stunned global stock markets with a 750bn-

euro.

France agrees to pitch in with 17 billion

euro.


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Situation of other countries

Spain is experiencing the highest

unemployment rate of 20%.

Italy- has already taken austerity measures.

The lower house of parliament has voted for

25 billion Euros of cuts to reduce the

countrys deficit. The govt. aims to reduce

budget deficits down from 5.3% of GDP to2.7% by 2012.


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Effect on India

Indias exports to Europe could witness aslump close to 10%.

Export driven sectors such as textiles and

software are likely to bear the brunt. About 22-28 percent of revenues of Indias

top tech majors come from Europe whose

revenues will definitely be affected. Governments overall target of $200 billion

for the fiscal could be at stake.


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FUTURE PREDICTED

Either the euro zone should go forintegrating their economic policies.

OR

It collapses, and the Greeks and otherprofligate countries devalue and thebanks (German, French, British and

American) lose hundreds of billions.

,


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evolution of euro.pptEvolution of EURO & Euro Crisis

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