Sovereign Debts(1)

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SOVEREIGN DEBTS PREPARED BY :--Makarand Takale

Vipul BaliDee ak Sachan


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OBJECTIV

ES To study the sovereign debt crisis ofPIGS

To analyze the macroeconomicindicators for crisis

Data like Government budget, public

debt & current account balance areanalyzed with the help of MS-Excel


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INTRODUCT

ION

What is Sovereign Debt ?

It is the failure of the Govt. & sovereign state torepay its debt in full.

In this study we have taken the case of PIGScountries and how they are under sovereign

debt due to a mix of domestic and internationalfactors

Factors Responsible

Domestically, high Govt. spending , structuralrigidities, tax evasion and corruption have allcontributed to countries accumulation of debtover the past decade

Internationally, the adoption of Euro & laxenforcement of EU rules aimed at limitin the


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MACROECONOMICSINDICATORSANALYZED

Public debt as percentage ofGDP

= (Govt. debt / Nominal GDP)* 100

Govt. Debt as a percentage ofGDP

Current Account balance


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GREECE

Budget deficit

Introduction of Euro

Late 2000s financial crisis

Transaction arrangements withGoldman Sachs (CreativeAccounting)


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REPUBLIC OFPORTUGAL

High Govt. spending Tax evasion Mismanagement of funds

Adoption of Euro Incapability to recover

situation


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IRELAND

Property bubble 32% of GDP as help to banks

85 billion bailoutagreement


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SPAIN

Weak economic growth Import of Oil

Property bubble Late 2000 financial crisis Inflation rate


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Govt. Budget as%age of GDPThe budget deficit is due to the high

spending of the governments of thesecountries

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Current Account as%age of GDPA large contraction of the trade deficit and

secondly a decrease in the income account deficitincreased the current account deficit

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Public Debt as %ageof GDPPIGS funded budget deficits by borrowing from

international markets leaving it with a chronically high

external debts. Both budget deficits and external debtslevel is well above those permitted by the rules governingthe EUs Economic & Monetary Union

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GDP in USbillion $After 2008, with the financial crisis , sluggish domestic

demand and low international competitiveness of the goods

produced, these countries witnessed a contraction in GDP

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5/5/12Share of Financial, Non-Financial and

Governmentsectors in key aggregates

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12Share of sectors in key aggregates


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s of expenditure components to the growth of nominal GDP in t


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Gross Profit share of Non Financial corporations


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Net acquisition of financial assets of non-financial corporations in the euro area


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5/5/12Net acquisition of financial assets of financial

corporations in the euro area

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RECOMMENDATIONSAusterity accompanied with further liberalization

Fiscal consolidation measures to reduce Govt. spendingand increase taxes

Radical exit from the Eurozone

There would be devaluation followed by cessation ofpayments and restructuring of debts

Increasing competitiveness of Goods produced

In order to boost the competitiveness of PIGS industriesand reduce their current account deficit, these industriesneed to increase their productivity , significantly cutwages and increase savings

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Sovereign Debts(1)