Euro Zone Crisis

“ Today, there are three kinds of people: the have's, the have-not's, and the

have-not-paid-for-what-they-have's.“ Earl Wilson

The Past Scenario•Euro- The common currency for

Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain

•Monetary Policy the responsibility of European Central Bank (ECB)

•2009- The fear of sovereign debt crisisCulprits- Greece, Poland, Ireland

•Crisis due to widening bond yields and risk insurance on credit default swaps

The Current Scenario•2, May 2010- IMF and Eurozone countries agreed for €110bn loan

•9, May 2010- EFSF set up by 27 EU states

•Followed by €85bn debt for Ireland in Nov, 2010 and €75bn for portugal in May,2011

•May, 2011- Greek problem surfaces again

•Greek Public reject austerity measures

The story behind it…

When and how did it startNational debt rises

to €262 bn from €168 bn 2004

Greece unveils a stability

programme

Eurozone finance ministers approve

€30bn debtS&P’s downgrade of Greece to junk

status

Greece receives a €14.5 bn loan from the EU

Parliament passes pension reform

Nov 2009

Dec 2009

Jan 2010

Apr 2010

May 2010

July 2010

Fitch third rating agency to downgrade to “JUNK” Greece unveils a series of privatizations, part of a goal

to raise €50bn by 2015 Head of the Eurozone finance ministers backs

Germany's proposal for a "soft restructuring" of Greece's debt

The EU welcomes Greek parliament's vote in favor of a severe austerity package that has sparked strikes

Greece can now receive the latest €12bn tranche of a €110 bn loan, instead of defaulting

Eurozone finance ministers approve new bailout package for Greece worth €109bn

The year 2011

Ireland, Portugal, Italy, Spain and France also undergo similar situations like Greece

Government Deficit for all these countries in negative as % of GDP

Public Debt to GDP more than 100% in most of these countries

10 year government bond yields less than 5%

Aftermath

HOW CREDIT RATINGS WORK?

CREDIT RATING- WHAT IT MEANS Credit worthiness Financial indicator Insurance premiums worth Employment eligibility

POOR RATING MEANS: High risk High interest rates

HOW RATING IS DONE? Evaluation of qualitative and quantitative

information  Not based on mathematical formulas Judgment and experience Political risk Economic risk Payment default risk

THE BIG THREES & PMOODY’SFITCH

Impact On India…Mixed Reactions from India

“I don’t think India will be much affected beyond the temporary market jitters and we should still grow at 8.2%” - C. Rangarajan, chairman of Indian Prime Minister Manmohan Singh’s Economic Advisory Council

US and Euro credit rating downgrade may impact India's IT, gems & jewellery exports: FIEO(the Federation of Indian Exporters )

Impact On India (contd)Rupee value-getting stronger

Exports -In 2010-11 ,India

exported $25.5 billion(from $225

billion )worth of goods to the Euro

region

Other Impacts….Gold

Surge in gold pricesTourism

8-10 per cent dip in total inbound touristsForeign Investments

India remains to be attractive destination