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Financial stability in Euro zone
Presented by:
Mohamed Kashif Raza
Neha V jain
Neha Khandelwal
Priyesh Shah
Ronak shah
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Gross Domestic Product
(US $ Billion)
3,309.67
304.87
2,560.00
228.54
203.89
2,051.41
1,407.41
GDP US$ Billion
Source: World Bank Data
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Germany
GreeceFrance
Portugal
Ireland
Italy
Spain
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European Crisis
1993: European Union was formed
1999: Introduced Euro
11 Countries started using Euro
Beneficiated PIIGS
Interest Rate < Inflation Rate
Countries started accumulating debt
Source: europa.eu
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Bond Yield (%)
0
5
10
15
20
25
30
35
40
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Germany
France
Portugal
Ireland
Italy
Spain
Greece
Source: World Bank Data
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Source: tradingeconomics.com
Source: tradingeconomics.com
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Source: tradingeconomics.com
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E.U rescue packages
Greece: 110 Billion 80 Billion (Euro zone Loans)+ 30 Billion (IMF)
Ireland: 85 Billion 22.5 Billion (EFSM) + 17.7 Billion (EFSF) + 4.8 Billion ( Bi-
lateral Aid)+ 22.5 Billion (IMF Loan)+ 17.5 ( Irelands Cash
Reserves)
Portugal: 80 Billion from Euro and IMF
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Countries
Greece
Less Productivity,
Pension for Arduous jobs.
Spain
Biggest housing bubble,
Spains real estate debt is around 35%-40% of its GDP
Brought $ 80 billion of Greece, Portugal and Irish bondsand lend around $450 to European governments andEuropean banks with no co-lateral.
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Countries
Italy
GDP is $US2.05 trillion in 2010 almost 7 times GDP ofGreece.
Italy is one of the world's largest markets for governmentbonds.
Italy's cost of borrowing continues to soar, it will have toraise around 650 billion ($869 billion) for the next three
years.
American banks have little ''direct'' exposure to Italy
Source: Analysts Capital Economics
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Money Owned ByGerman Banks
28.8 Billion Greece
28.7 Portugal
114.7 Billion Ireland 146.8 Billion Spain
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Suggestion by Franco- German
Automatic penalties
Harmonization of the fiscal system and the
taxation base
Adjustment of the pension systems
Suggestion to establish minimum rates of
investment
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ROLE OF EFSF
EFSF
EFSFS top credit rating affirmed:
AAA-S&P; Aaa-Moodys EFSF places 3 billion bond in support of
Ireland.
EFSF launches short term funding programme
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ROLE OF ECB
June 2009: ECB launches first covered bondsprogramme.
March 2010: Welcomes Greek governmentsconsolidation measures
March 2010: Offers support to Greece.
May 2010: Introduces securities marketsprogramme
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ROLE OF ECB
US dollar/euro swaps re-activated.
June 2010: ESFS established
June 2010: Ends covered bonds programme.
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ROLE OF ECB
JULY 2010: Banks stress test results published
ECB announces stricter rules on bank collateral
Nov 2010: Ireland seeks financial support
Dec 2010: European systemic risk board set up.
Dec 2010: Introduces loan by loan informationrequirements.
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ROLE OF ECB
JUNE 2011: Approves aid to Portugal.
AUG 2011: Statement by ECB President.
OCT 2011: announces 2nd covered bondpurchase programme.
Nov 2011: Lowers interest rates by 25 bps.
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European Central Bank
ECB Total Assets: 1939 Billion
77.5 Billion Purchased a sovereign bondsfrom indebted Euro countries.
60.7 Billion Purchase of company bonds as aresult of financial crisis.
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Expected Aids
European council to give 200 billion to IMF to
bailout European countries.
European Stability mechanism by July 2012,
permanent 500 billion
EFSF- 440 billion
ECB capping to purchase weekly bonds at 20
billion
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Greece budget- 2012
Cut deficit to 5.4%of GDP. Projected 9%of GDP
Taxes: Charging up to 5% on personal income
Also controversial property has to pay up to 5% or else
face electricity cut. Elimination of 30,000 public sector jobs- will bring
savings of200 million
950 million- coming from the launch of a unified
payment system for civil servants. Spending on health and welfare would fall by 9 per
cent.
5.8 per cent overall reduction in wages and pensions
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Italys austerity package
30 billion euro package of austerity.
Aims to raise more than 10 billion Euros from
New property tax, new tax on luxury items like
yachts, raise value added tax, crack down ontax evasion and bring forward measures to
increase the pension age.
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