1.WHAT IS THE FUTURE FOR THE EURO ZONE ?

INTRODUCTION

Defination- The collective group of countries which use the Euro (€) as their common currency. The Euro area known informally as the Euro zone.

Euro zone- The Euro zone came into being in 1999, and originally consisted of 11 countries. As of 2009, 16 countries were part of the Euro zone. The states that have adopted the Euro as their common currency are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, The Netherlands, Portugal, Slovakia, Slovenia and Spain. The total population of Euro zone from these state is 32,99,37,622. The Euro zone does not include every country. In the European Union some countries are not yet using the Euro. To become part of the Euro zone, the country must use the Euro as its sole legal currency. As a currency union, monetary rules are created and maintained by the European Central Bank.

Major Player- The Euro zone is the major player in the world economy and can effect U.S. economic and political interests in significant ways. Given its economic and political heft, the evolution and future direction of the Euro zone is of major interest to congress, particularly committees with oversight responsibilities for U.S. international economic and foreign policies.

DISCUSSION

1. Introduction to Euro Zone crisis
It is the biggest challenge Europe has faced since 1990. Due to global financial crisis that began in 2007-08 the euro zone entered its first official recession in third quarter of 2008. The official figures were released in 2009 Jan. On 11 Oct 2008, a summit was held in Paris by the Euro group heads of state and Government to define a joint action plan for euro zone and central banks of Europe to stabilize the economy.

2. Beginning of Crisis
Started in – Oct 2009 in Greece. Its immediate causes lie with the US crisis of 2007-09. The result in Euro Zone was Sovereign debt crisis. PIIGS: Portugal, Italy, Ireland, Greece, Spain.

3. Greek crisis

Greek crisis has made investors nervous about lending money to governments through buying government bonds.

4. Resolutions
European governments and the International Monetary Fund (IMF) have stunned global stock markets with a 750bn-euro. France agrees to pitch in with 17 billion euro.

5. Situation of other countries
Spain is experiencing the highest unemployment rate of 20%.
Italy- has already taken austerity measures. The lower house of parliament has voted for 25 billion Euros of cuts to reduce the country’s deficit. Rising Unemployment: Lower tax returns, higher budget deficits.

6. Greek debt crisis
In the first quarter of 2010, the national debt of Greece was put at €300 billion ($413.6 billion), which is bigger than the country's economy.
Greece has the worst combination of high debt level, large budget deficit and large external debt

7. Countries Affected By Greek Crisis
South-eastern Europe
Neighbouring Serbia, Albania, Macedonia, Romania, Bulgaria and Turkey.

8. Effect on India
India’s exports to Europe could witness a slump close to 10%.
Export driven sectors such as textiles and software are likely to bear the brunt.
About 22-28 percent of revenues of India’s top tech majors come from Europe whose revenues will definitely be affected.
Government’s overall target of $200 billion for the fiscal could be at stake.

9. Problems

It combines efficient and indiscipline economies.

Too high debts.

Political problems.

10. Solutions
Countries affected must
Grind down Wages
Raise Productivity
Slash Spending
Raise taxes
Transparent Banking system
Endure such Austerity Drives for many years

11. Future Predicted

Either the euro zone should go for integrating their economic policies.

OR

It collapses, and the Greeks and other profligate countries devalue and the banks

(German, French, British and American) lose hundreds of billions.

Source- Wikipedia.org & slideshare.net

CONCLUSIONS

There is only two ways out of this crisis for the Euro zone It could pull countries closer together or It could break them apart

• Cautious Euro zone response to Financial Crisis

– Interest rate policy reaction delayed: concentration on inflation target

– Fiscal policy reaction muted: Stability & Growth Pact

• Common currency members avoided large devaluations and foreign currency debt.

• European governments have tried to act together, not always successfully.

• Limited impact of falling exports due to extensive internal trade relationships.

• Greece facing difficult adjustment problems, European banks avoiding losses on Greek bonds.

• CONCLUSION
The US crisis led to Global financial crisis, which further spread to Euro zone and caused Euro zone crisis, as these countries were most affected.
Hence the Big Brothers should help the countries in problem to come out from the crisis.

Submitted To: Gurdeepak Singh

Submitted By: Ashish Kumar, MBA-B