Euro Zone Crisis and Its Impact on India

7/28/2019 Euro Zone Crisis and Its Impact on India

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GROUP 6


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Living beyond our means = European crisis In early 2010 economic activities of the PIGS (a group of 4

nations in Europe namely Portugal, Italy, Greece and Spain)have come under increased scrutiny from the internationalinvestment community, with the threat ofSovereign default

lurking around the corner. Sovereign default refers to a situation when government of

particular country is unable to repay its debts. This situationof default payments by governments lead to European crisis.


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Europe's Sovereign Debt Crisis and itsinternational impact A deepening crisis of confidence in sovereign debt within the

euro zone is prompting institutional and retail investors torethink their investment strategies.

In December 2009 several international rating agencies

mislead international finance community by a junk rating toGreek bonds .In April, the world knew some of the real worldimplications of Greeces sovereign debt.

It owed external lenders some $190 billion and was unable to

continue making even interest payments.


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EU debt crisis and its impact on Global markets Most attention continued to center on the European debt crisis

as investors fretted that efforts to cut deficits and debt will killgrowth by withdrawing government stimulus from economiesin Greece, Spain and Portugal.

While the package of measures announced will moderateeuro area governments' vulnerability to 'confidence shocks'and extreme market volatility, investor confidence will remainfragile until European governments, including the UK, are

seen to be delivering on fiscal consolidation and the economicrecovery is secured.


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Indian market reaction Indian stock markets have corrected 10% from its recent

peaks on the back of the jitters from the Greece-ledEuropean crisis. In fact, the concerns about the stability inthe European region have once again resurfaced with thelatest down grade of Spain by the Fitch.

However, India has out-performed the global indicesduring this correction phase. India has not corrected asmuch as have other global markets, during the phase ofEuropean debt crisis.


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Why is India an Out-performer?

Indian economy is far less dependent on exports to Europe.Indian IT companies have a lower exposure to Europeanclients to the extent of roughly a quarter of their revenues.

Add to that Indias exposure to debt-stuck economies suchas Greece, Spain, Italy and Portugal is far more limited to4% of total exports.

Thus, there are various parameters on which Indian stockmarkets have out-performed the global indices while goingpassing through the turmoil phase of European crisis.

Investors waiting on sidelines should use every dip fromhere to create a portfolio for long-term duration.


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How European crisis could impact

India? Impact on exports The European Union accounts for nearly 21 per cent of

India's total export and Exports to Greece, Spain andPortugal, including Italy, is only 4%.

Indian finance minister rightly said thats Indian export toPIGS are marginally low and will not have any impact on it..India export mainly textiles, pharmacy products, Gems etc

to European countries but these sectors were not effectmuch on crisis.


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contIncrease in foreign fund inflows International investors lost trust in world markets because

of series of crisis in US and Europe. But a majority of FII and

other individual investors choose Indian markets to investas showed stability in their economy with a strong fiscalpolicies .


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Lessons learned from Euro zone crisis Cant manipulate the numbers to hide the reality The Greek tragedy has opened our eyes to many things. No one can

any longer mock the critics of high fiscal deficits. Too much dependency on foreign institutions to raise funds

The debt problem of Greece is compounded by the fact that a goodpart of the government debt is held by foreign institutions,particularly foreign banks.

Government driven crisis than a market Failure The 2008 financial crisis was triggered by the excesses of

financial institutions and financial markets. On the otherhand, the current Greek episode has been triggered by theexcess of a public entity, which is the government of Greeceitself.


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How can Euro zone recover from this crisis? confidence needs to be re-established there: strong and

coordinated signals must be sent about the ability of the weakstates in the Euro zone to put their fiscal situation in order,accepting the imposition of strong monitoring and discipline

on fiscal policy by the Unions institutions. Member counties in EU have to implement strong fiscal

policies to protect themselves from all kind of risks they mayface

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Euro Zone Crisis and Its Impact on India