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CONTENTS
What is Euro Zone? What is Euro Zone Crisis? Countries affected and impact on them(PIIGS). Effect on Greece. Present condition. Solution. Conclusion.
Euro Zone
It is an economic and monetary union (EMU) of 16 European Union (EU) member states They have adopted the euro as their sole trading currency. Euro became a reality on Jan 1, 1998 , but came for the European consumers on Jan 1 2002. It currently consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.
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 Govt. , to define a joint action plan for euro zone and central banks of Europe to stabilize the economy.
Beginning of Crisis
Started in Oct 2009 in Greece Its immediate causes lie with the US crisis of 200709. The result in Euro Zone was Sovereign debt crisis.
Reasons for rise in External Debts High household indebtness. Large current account deficit:
Excessive growth in domestic demand. Increase in wage rates. Lower exchange rate risk.
Weakening export competitiveness. Reasons for rise in Internal Debts: Rising Unemployment: Lower tax returns, higher budget deficits.
PRESENT SITUATION
IMPACT
Contagion Effect Greek crisis has made investors nervous about lending money to governments through buying government bonds. Reduced wealth: Take-home pay is likely to fall as it is eroded by rising taxes. Impact on private individuals
COUNTRIES AFFECTED
High Risk
Moderate Risk
Lower Risk
Resolutions
European governments and the International Monetary Fund (IMF) have stunned global stock
Effect on India
Indias 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 Indias top tech majors come from Europe whose revenues will definitely be affected. Governments overall target of $200 billion for the fiscal could be at stake.
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.
PROBLEMS
It combines efficient and indiscipline economies. Too high debts. Political problems.
SOLUTIONS
Countries affected must: Grind down Wages Raise Productivity Slash Spending Raise taxes Transparent Banking system Endure such Austerity Drives for many years
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.