Eurozone crisis: A peek into the sovereign debt crisis
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Eurozone crisis: A peek into the sovereign debt crisis
- 1. * BY HARVINDER SINGH IBADAT SINGH SETHI MEENAKSHI PANDITA NARDEEP KOUR
- 2. * 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 *
- 3. * CRITERIA FOR JOINING EURO ZONE LOW INFLATION RATE GOVERNMENT FINANCE EXCHANGE RATE LOW LONG TERM INTEREST RATES
- 4. *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 *
- 5. *NON MEMBER USAGE OF EURO Monaco, San Marino, and Vatican City * EXPULSION AND SECESSION * ADMINISTRATION AND REPRESENTATION
- 6. *
- 7. * NO PENALTIES *
- 8. *
- 9. *
- 10. * EUROZONE BANKING SYSTEM * TRADE IMBALANCES * GLOBAL ECONOMY
- 11. * STRUCTURAL PROBLEM OF EUROZONE SYSTEM * A MONETARY UNION WITHOUT A FISCAL UNION
- 12. * LOSS OF INTEREST
- 13. * USA * JAPAN * CHINA * RUSSIA * BRAZIL * IMPACT ON SUB-SAHARAN AFRICA * IMPACT ON NORTH AFRICA AND MIDDLE EAST *
- 14. * DROP IN TRADE FINANCE * BANKS ARE BECOMING INCREASINGLY RELUCTANT * TRADE FINANCE VOLUME FELL TO $26.8BN * NEW BANKING RULES *
- 15. COUNTRY CURRENT LONG TERM RATING PREVIOUS LONG TERM RATING 2 Notches Down Cyprus BB+ BBB Italy BBB+ A Portugal BB BBB- Spain A AA- 1 Notch Down Austria AA+ AAA France AA+ AAA Malta A- A Slovakia A A+ Slovenia A+ AA- *
- 16. * US DOLLAR HAS RISEN 1 JAN. 2010 1£ = 1.43$ 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 *
- 17. * 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 *
- 18. * 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 *
- 19. * 1/5TH OF CHINA’s EXPORTS GO TO EUROPE * CHINESE YUAN INCRESED BY 23% AGAINST THE EURO * EXPORTS FELL TO 15.2% *
- 20. * ECONOMIC GROWTH DECLINED FROM 7.5% IN 2010 TO 2.7% IN 2011 * 43% INCREASE EXPORTS TO CHINA * 17 % EXPORTS GO TO CHINA *
- 21. * 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 *
- 22. * 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 *
- 23. * IMPACT OF CRISIS ON INDIA 1. Share of Indian exports as compared to the advanced economies is decreased drastically. *
- 24. 2. Contraction in the manufacturing sector.
- 25. 3. Share of EU countries in India’s total exports
- 26. 4. Indian Software Sector
- 27. 5. Impact on Foreign Direct Investment (FDI)
- 28. 6. Impact on Foreign Institutional Investment(FII)
- 29. 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.
- 30. * PUBLIC EXPENDITURE * FISCAL POLICIES AND MONETARY POLICIES * FOREIGN INVESTORS * HOME INVESTORS *
- 31. *