2. What is crisis..???
• An unstable and dangerous situation affecting
an individual, group, community or whole
society.
• Negative changes in the security, economic,
political, societal or environmental affairs,
especially when they occur abruptly, with little
or no warning.
• 'A testing time' or an 'emergency event'.
2
4. Poverty
Related
Crisis
International Types Economic
Crisis Of Crisis Crisis
Environment
al Crisis
4
5. Debt crisis
• A debt crisis deals with countries and their ability to repay
borrowed funds.
• It would be continuous deficit spending that keeps adding
to the national debt. Eventually, we reach the point where
servicing the debt can not be maintained leading to a
default on the obligation. i.e. Greece.
• From late 2009, fears of a sovereign debt crisis developed
among investors as a result of the rising private and
government debt levels around the world together with a
wave of downgrading of government debt in some
European states.
5
6. • In Greece, unsustainable public sector wage and pension
commitments drove the debt increase.
• The European Central Bank has taken measures to maintain
money flows between European banks by lowering interest
rates and providing weaker banks (mostly from crisis
countries) with cheap loans of more than one trillion Euros.
• Three countries significantly affected, Greece, Ireland and
Portugal, collectively accounted for 6% of the euro zone's
gross domestic product (GDP). In June 2012, also Spain
became a matter of concern, when rising interest rates
began to affect its ability to access capital markets, leading
to a bailout of its banks and other measures.
6
7. • To address the deeper roots of economic
imbalances most EU countries agreed on
adopting the Euro Plus Pact, consisting of
political reforms to improve fiscal strength and
competitiveness.
7
8. Causes of debt crises
• Rising households & government debt crisis
• Trade imbalance
• Structural problem of euro zone system
• Monetary policy inflexibility
• Loss of confidence
8
9. Financial crises
• Stock market crashes and the bursting of other
financial bubbles, currency crises, and sovereign
defaults. Financial crises directly result in a loss of
paper wealth
• A financial crisis would be the failure of the
banking system resulting in a severe restriction
on the availability of credit. If businesses are
unable to secure credit to maintain or expand
business activity it would lead to a contraction of
the economy. i.e. U.S. banking crisis.
9
10. Financial crisis
A Situation in which the value of the financial institutions or assets
drops rapidly
Reasons for Financial crisis
•Global Imbalance
•Housing bubble
•Imprudent mortgage lending
• Withdraw money from financial institutions
10
11. The sharpest global decline since 1970
GDP Growth
10
Percent change
8
6
4
2
0
70
73
76
79
82
85
88
91
94
97
00
03
06
09
-2
19
19
19
19
19
19
19
19
19
19
20
20
20
20
-4
Advanced economies Emerging and developing economies World
11
12. Economic crisis
Economic crisis is the situation when any economy face the problem of the
balance of the payment and start the defaulting in the central bank installment
Reasons for the Economic crisis
•Current account deficit
•Currency overvaluation
•Fiscal deficit
•Balance of payment
12
13. Factors that contributed to
the financial crisis
Surplus balance of payment and increase in Growth in foreign capital
savings 1
Low long term interest rates to stimulate Low interest rates
investment 2
Homeownership - investment, source of
Promotion of homeownership by the
property tax and stability
3 federal government
Placed some derivatives and firms beyond Deregulatory measures taken by
effective regulation 4 Congress and SEC
Securitization provided capital for on Growth of securitization and subprime
lending and “reduced risks” 5 mortgages
Eisenhower Fellowships – 2010 Women’s Leadership Program
14. Impact on World
Eisenhower Fellowships – 2010 Women’s Leadership Program impact of the financial crisis
October 2010 The Slide 14
15. How financial crisis is
affecting developing
countries
Financial crisis is more global than any other period of financial
turmoil in the past 60 years.
Extent and severity of the crisis began with the bursting of the
housing bubble in the United States in August 2007
In line with previous crisis, the pre crisis period was characterized
by:
• Surging asset prices, that proved unsustainable
• Prolonged credit expansion leading to debt accumulation
• Emergence of financial instruments
• Inability of regulators to keep up
• New – rapid expansion of securitization
Eisenhower Fellowships – 2010 Women’s Leadership Program impact of the financial crisis
October 2010 The Slide 15
16. Impact on Indian economy
• A prolonged and widespread debt crisis in Europe
could have a sustainable negative impact on
Indian Economy.
• If the solution of Greece crisis takes longer than
anticipated or if the confidence crisis in Europe
would become more wide spread, there could be
a substantial negative impact on India.
• If the debt crisis would spread to other nations in
Europe & their banking system, european entities
could start Repatriation of funds to Indian Stock
markets.
Slide 16
17. • This could negatively impact the Indian stock
market and lead to lower foreign currency
reserves.
• Severe macro - economic impact due to
turmoil.
• At least 27% of India’s trade is with Europe
and crisis will impact the India’s export to the
region.
17
18. Conclusions
• Cautious Eurozone response to Financial Crisis
– Interest rate policy reaction delayed: concentration on
inflation target
– Fiscal policy reaction muted: Stability & Growth Pact
• Common currency members avoided large
devaluations and foreign currency debt.
• European governments have tried to act together, not
always successfully.
• Limited impact of falling exports due to extensive
internal trade relationships.
• Greece facing difficult adjustment problems, European
banks avoiding losses on Greek bonds.
