Euro Final Ppt

8/2/2019 Euro Final Ppt

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HIRAL PATEL 111SIRJAN GUPTA 113

SWATI PRABHU 115RUPAL DIXIT 117SUMIT JAISWAL 119


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The Euro and Economic and Monetary UnionManaging the Euro

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

2011 Estonia


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Fiscal Policies

- Broad Economic Policy Guidelines- Stability and Growth Pact- Inflation measurement


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Confidence in the prospects of growth and stabilityof GIIPS economies

Lower interest rates drove up domestic demandIncreased price of domestic activities attractedinvestment in non-tradable sectors other than

exportsExport goods from historically stable countries likeGermany, the Netherlands, etc more affordable


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Domestic demand boom in the GIIPS inducedrapid wage growth outpacing productivity

Increased labour costs erode externalcompetitiveness

Lower borrowing costs and expansion ofdomestic demand boosted tax revenues


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US consumer retrenchment directly affected thesales opportunities of European exporters

Implosion of the European banking sector

Massive rate cuts by the US Federal Reserve

The crisis hit emerging economies leading themto cut imports


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Effect of global crisis on shipping and tourismLarge public deficits and large debts

Lack of transparency

Downgrading of debt

Austerity

Loan AgreementDanger of default

Objections to proposed policies


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Ireland, Italy, Portugal and Spain

Iceland

Slovania

The UK

Latvia, Lithuania and Estonia

Belgium


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Currency Devaluation not possible

Monetary policy was too loose

Tourism affected


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Stock and debt market reactionsFiscal AusterityMoral HazardPolarized CommunityWorld Trade DisruptedCredit ShortageInflation, Hyperinflation and Social SecurityDisruptive Consequences


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Contagion effect

Criticism of euro-model

Degradation of euro

Pressure building on the currency


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ECB injected liquidity into European banksunable to obtain short-term funds in market.

Federal Reserve used Euro-dollar swaps tomake dollars available to ECB to lend to banks.

ECB did not lower interest rates until October2008 because of its focus on inflation.

Euro fell against the dollar due to safe haven

flight to US Treasury securities.


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European Financial StabilityFacility (EFSF)

IMF

Japans financial assistance

Investment from Germany


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Impact On India

European Sovereign Debt Crisis :


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There Are Five Principle Channels Through Which T

Developments In Europe Can PercolateTo The Indian Economy. Those Channels Are :

TradeCurrencyInvestmentBankingCommodity Price


19/25Impact On IndiaImpact On India

Impact On IndiaImpact On India

T r a

d e

Trade Channels :

T r a d

eMerchandise goods & commercial services.Major Exports To Germany, France, & UK.India Contributes Around 25% Of CommercialServices To European Countries.This Channel Did Not Affect Indian Economy Much.

I O I di


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C u r r e n c y

C h a n n e

l

Currency Channel :

C ur r

en c y

C h

a

nn el

Depreciation Of Euro Against Currencies Including Rupee.Profit Margin Negatively Impacted for Indian Exporters.Imports Relatively Cheaper; Benefits Imports of Machinery &equipments.

Appreciation Of Rupee Could Also Undermine Indias ExportCompetitiveness.

I t O I diI t O I di


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Impact On IndiImpact On India


B a

n k i n g

C h a n n e

l s

Banking Channels :

B ank i n

g

C h

ann el s

Merchandise goods & commercial services.Major Exports To Germany, France, & UK.India Contributes Around 25% Of Commercial

Services To European Countries.This Channel Did Not Affect Indian Economy Much.

I t O I diI t O I di


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C o m m o

d i t y

C h a n n e

l s

Commodity price Channels :

C om

m o d i t y

C h

ann

el s

Global CommodityPrices

Directly Affects Price OfImports Cost Of

Products

Oil Is One Of The Major Commodity Imported.Oil Imports In India Are Relatively Price Inelastic.Crude Oil Prices Were Raised To US$ 147/Barrel In July 2008The Demand For Crude Oil & Primary Commodities Was & Was

Soaring Higher,Where as The Price Became The Supply Constraint.


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53 billion needed to avoid the increasing massive debt; an

unachievable target even with foreign taxpayers' contributionProposed plans of buying back own debt by using EU/IMF bailout funds are not sufficient since:

Debt is transformed, not removed

Huge moral hazard concernsNo sources to meet 6.85 billion fund deficit

11% interest rate denies borrowing money as an optionGreek economy expected to shrink by 4% in 2011

Tax evasion costs Greek Funding gap 2011 bnPrimary Budget Deficit 4.95Debt Repayments 32.5Interest payments on debt 15.9Total debt 53.35EU bail out fund 46.5Unmet Fund deficit 6.85


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Lack of economic competitiveness is the coreproblem.

Options to address it-1. Completely reform the economy

2. Rely on permanent subsidies from strongereconomies, or3. Seek monetary independence, allowing for currency

devaluation

2.4% inflation forces Germany to pressurize ECB toincrease interest rates, which is detrimental for Greekeconomy


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Any Questions, Comments,Suggestion or Doubt..!!

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Euro Final Ppt