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T.Y.B.Com Financial Markets

To-Kinjal Madam

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Pooja Chavan

Anam Lakhani

Pinal Malkan

Sagar Parmar

Arpit Shah

Paras Shah Vineet Thakkar

505

519

522

525

534

541 550

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PIIGS

Ireland, Italy and Greece

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In early 2010, fears of a sovereign debt crisis, the

2010 Euro Crisis developed concerning some

European states, including European Union members

Portugal,Ireland,Italy, Greece, Spain (sometimes

collectively referred to with the acronym PIIGS), and

Belgium.

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One of the obvious reasons for the bailout was not to

protect Greece, but to save the bond holders; most of

the bond holders are foreigners.Another factor to consider is that no government

wants to pay its debt in a stronger currency;

governments borrow money so that they can pay it

back with cheap currency.

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2 An acronym used to refer to the five Euro zone

nations, which were considered weaker economically

following the financial crisis: Portugal,Italy,Ireland,

Greece and Spain.2 Since the nations use the euro as their currency,

they were unable to employ independent monetary

policy in order to help battle the economic downturn.

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Portugal was hit by the desire to have high wages and the

inability to manipulate national fiscal/currency policy to restart

a failing economy.

Italy tried to pay high wages and had an under-competitive

economy, hence a budget deficit crisis.

Ireland had a bubble economy based on high wages,property

booms, stock markets booms, and tourism, which inevitably

collapsed.

Greece took out excessive overseas loans in the hope ofrestarting its national economy, especially after the slump in air

travel related tourism that came directly after September the

11th.

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The Greek economy was one of the fastest growing in

the euro zone during the 2000s; from 2000 to 2007 it

grew at an annual rate of4.2% as foreign capitalflooded the country.

The global financial crisis that began in 2008 had a

particularly large effect on Greece. Two of the

country's largest industries are tourism and shipping,

and both were badly affected by the downturn with

revenues falling 15% in 2009.

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Downgrading of debt

On 27 April 2010, the Greek debt rating was

decreased to the first levels of 'junk' status by

Standard & Poor's amidst fears of default by theGreek government.

Austerity and loan agreement

Danger of default

Without a bailout agreement, there was a

possibility that Greece would have been forced to

default on some of its debt.

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Italy has a capitalist economy with high

GDP per capita and developed

infrastructure. According to both

the International Monetary Fund and theWorld Bank, in 2009Italy was

the seventh-largest economy in the

world and the fourth-largest in Europe.

Italy is member of the Group ofEight (G8) industrialized nations,

the European Union and the OECD.

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Medium-sized companies more resilient

Stronger impact on small enterprises

Geographical areas worst affected

Sectoral impact

Reactions of social partners

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3The global crisis has taken its toll on Italys economy,

long-standing structural weaknesses and causing the

worst recession.

3The banking system has weathered the crisis relativelywell.

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The global economic crisis has hit a structurally weak

Italian economy.

The global crisis affected the economy mainly

through the trade, credit, and confidence channels. The slow recovery ofItalys major trading partners

and the significant competitiveness gap will limit

export growth.

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Debt management has been conducted prudently, by

lengthening the maturity of public debt and building

buffers.

The overarching goals should be to maintain fiscaldiscipline, reduce the burden of public debt, and raise

the economys long-term growth rate.

Evidence suggests that recoveries from economic

crises can serve as an opportunity for reforms.

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2 Expenditure-based fiscal consolidation: improving the

efficiency of the public sector.

2 The authorities intend to gradually reduce the deficit

to below 3 percent of GDP by 2012.2 Financial sector: addressing the challenges ahead

2 Italian banks will face a number of challenges over

the medium term.

2 Efforts to strengthen capitalization should thus

continue.

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g The expansion of government sponsored loan

guarantee schemes in support of SMEs was

appropriate.

g Structural reforms: unleashing growth potential.g A number of recent reforms have set the stage for

further progress.

g Despite substantial improvements over the past

decade, labor market performance still lags behind

that in other European economies.

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The 20082010Irish financial crises are a major

economic crisis in Ireland that is partly responsible for

the country falling into recession for the first time

since the 1980s. Background and causes

Impact

Anglo Irish Bank

Growth and unemployment

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G Property market

G Government responses

G Strikes and industrial unrest

G Government approval ratings

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Public demonstrations

Banking system supports

National Asset Management Agency

Increasing debt spiral

EU-IMF intervention

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UnderUS law, when a company declares bankruptcy,

its common stock holders lose all their investments.

The losers are: company employees, the stock holders,

the preferred stock holders and bond holders. In time, the stock may recover if the loss turns out to

be a minor one. If the company can make more money

from other portfolio to offset its lose on their

investment on the bankrupted company, the stock willrecover soon.

The countries are no different than companies.

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gTheir combined GDP is about $3.6 trillion,about 1/4 of that of the United States. Their

combined total debts are $3.9 trillion or about

110% of its combined GDP.

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GDP $350 Billion

Debt $236 billion

GDP $350 Billion

Debt $236 billion

GDP $350 Billion

Debt $236 billion

GDP $350 Billion

Debt $236 billion

GDP $350 BillionDebt $236 billion

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