Eurozone 2 Economies :

Greece, Portugal, Spain

Submitted by
Group 8


Flow of Presentation
1. The Eurozone Crisis
2. The Portuguese Economy
3. The Spanish Economy
4. The Economic health of Greece


THE
EUROZONE
CRISIS
TOPICS TO BE DISCUSSED
Eurozone
Eurozone crisis
How the crisis started
Current situation
Whos fault
Impact on India

EUROZONE
Economic and monetary union (EMU) of 17 European
Union (EU) member states
Adopted Euro as their sole trading currency
Consists of Austria, Belgium, Cyprus, Estonia, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg,
Malta, the Netherlands, Portugal, Slovakia, Slovenia
and Spain.
EUROZONE CRISIS
An ongoing crisis that has been affecting the countries
of the Eurozone since late 2009.
It is a combined Government debt crisis, a banking
crisis and a growth and competitiveness crisis.
Started in October, 2009 in Greece
Weaker economies: Portugal, Italy, Ireland, Greece,
Spain (PIIGS)
HOW THE CRISIS STARTED
EU comprised of strong economies (Germany,
France) & weak economies (Greece, Portugal)
Weaker economies of EU (PIIGS) overspent
using borrowed money
Unable to pay back their debt
Spain - ended up with high deficits because it
couldn't collect enough tax revenue to cover its
expenses
Greece:
- borrowed beyond its means
- lots of overspending
- little economic production to make up the difference
- creative bookkeeping to prevent euro zone authorities
from realizing the true extent of the situation
Italy and Portugal - huge debt to GDP ratios, high
unemployment and weakened economy
CURRENT SITUATION
Investors reluctant to buy bonds from European
countries, since many are in huge debts
EU may break up
Certain countries may pull out of EU
Unemployment in Spain is at 25%
Hampered international trade
WHOSE FAULT??
Countries borrowed too much, taking
advantage of the low interest rates available to
all euro member nations
Euro as a single currency cant meet the needs
of 17 different economies
IMPACT ON INDIA
Capital flows into the economy and exports
FII investment pattern marked with high volatility
Merchandise exports to the region declined by 1%
Decline in tourist visits from Europe
Weak Euro => Strong USD => Weak INR
IT/Outsourcing companies facing losses

Location
Portugal , officially the Portuguese Republic, is a country
located in southwestern Europe on the Iberian Peninsula.
Background
Portugal was a global maritime power during the 15th and
16th centuries .
Portugal lost much of its wealth and status with the
destruction of Lisbon in a 1755 earthquake, occupation
during the Napoleonic Wars, and the independence of its
wealthiest colony of Brazil in 1822.
A 1910 revolution deposed the monarchy; for most of the
next six decades, repressive governments ran the country.
In 1974, a left-wing military coup installed broad
democratic reforms.
The following year, Portugal granted independence to all
of its African colonies. Portugal is a founding member of
NATO and entered the EC (now the EU) in 1986.

Recent Economic Scenario
GDP (PPP) $237.3 billion
GDP (per capita ) - $23000 (64
th
in world)
GDP by sector of origin
Agriculture: 2.5%
Industry: 22.1%
Services: 75.4% (2012 est.)


Portugal European
integration

In 1986, Portugal joined the European Economic Community (EEC) that
later became the European Union (EU). In the following years Portugal's
economy progressed considerably as a result of EEC/EU structural and
cohesion funds and Portuguese companies easier access to foreign
markets.


On 26 March 1995, Portugal started to implement Schengen Area rules,
eliminating border controls with other Schengen members while simultaneously
strengthening border controls with non-member states.



In 1996 the country was a co-founder of the Community of Portuguese Language
Countries (CPLP) headquartered in Lisbon. Expo '98 took place in Portugal and
in 1999 it was one of the founding countries of the euro and the eurozone.

On 5 July 2004, Jos Manuel Barroso, then Prime Minister of
Portugal, was nominated President of the European Commission,
the most powerful office in the European Union. On 1 December
2009, the Treaty of Lisbon entered into force, after had been signed
by the European Union member states on 13 December 2007 in
the Jernimos Monastery, in Lisbon, enhancing the efficiency and
democratic legitimacy of the Union and improving the coherence
of its action.

Economic disruption and an unsustainable government debt in the
wake of the late-2000 financial crisis led the country to negotiate
in 2011 with the IMF and the European Union, through the
European Financial Stability Mechanism (EFSM) and
the European Financial Stability Facility (EFSF), a loan to help the
country stabilise its finances.

PORTUGAL POPULATION

The total population in Portugal was last recorded at 10.6 million
people in 2011 from 8.9 million in 1960, changing 19 percent
during the last 50 years. Population in Portugal is reported by the
World Bank. Historically, from 1960 until 2011, Portugal
Population averaged 9.8 Million reaching an all time high of 10.6
Million in December of 2010 and a record low of 8.6 Million in
December of 1972.

EURO EXCHANGE RATE |
EUR/USD | PORTUGAL

Portugal has adopted the euro. Historically, from 1957 until 2013, the EURUSD averaged 1.3600 reaching an
all time high of 1.8700 in July of 1973 and a record low of 0.7000 in February of 1985. The euro is the official
currency of Portugal, which is a member of the European Union. The Euro Area refers to a currency union
among the European Union member states that have adopted the euro as their sole official currency. In
Portugal, interest rate decisions are taken by the Governing Council of the European Central Bank

PORTUGAL GDP PER
CAPITA

The Gross Domestic Product per capita in Portugal was last recorded at 11558.94 US dollars in
2011. The GDP per Capita in Portugal is equivalent to 93 percent of the world's average. GDP
per capita in Portugal is reported by the World Bank. Historically, from 1960 until 2011, Portugal
GDP per capita averaged 7419.3 USD reaching an all time high of 11926.1 USD in December of
2007 and a record low of 2343.2 USD in December of 1960.

PORTUGAL GDP

The Gross Domestic Product (GDP) in Portugal was worth 237.52 billion US dollars
in 2011. The GDP value of Portugal represents 0.38 percent of the world economy.
GDP in Portugal is reported by the The World Bank Group. Historically, from 1960
until 2011, Portugal GDP averaged 74.4 USD Billion reaching an all time high of
251.9 USD Billion in December of 2008 and a record low of 3.2 USD Billion in
December of 1960. The gross domestic product (GDP) measures of national income
and output for a given country's economy. The gross domestic product (GDP) is equal
to the total expenditures for all final goods and services. produced within the country
in a stipulated period of time.
PORTUGAL EMPLOYED
PERSONS

Employed Persons in Portugal decreased to 4433.20 Thousand Persons in the first quarter of
2013 from 4531.80 Thousand Persons in the fourth quarter of 2012. Employed Persons in
Portugal is reported by the National Statistics Office, Portugal. Historically, from 1988 until 2013,
Portugal Employed Persons averaged 4749.44 Thousand Persons reaching an all time high of
5228.10 Thousand Persons in May of 2008 and a record low of 4215.20 Thousand Persons in
February of 1994. In Portugal, employed persons are individuals with a minimum required age
who work during a certain time for a business.

PORTUGAL
UNEMPLOYMENT RATE

Unemployment Rate in Portugal increased to 17.70 percent in the first quarter of 2013 from 16.90
percent in the fourth quarter of 2012. Unemployment Rate in Portugal is reported by the Instituto
Nacional de Estatistica.

PORTUGAL
GOVERNMENT DEBT
TO GDP

Portugal recorded a Government Debt to GDP of 123.60 percent of the country's Gross
Domestic Product in 2012. Government Debt To GDP in Portugal is reported by the Eurostat.
Historically, from 1990 until 2012, Portugal Government Debt To GDP averaged 65.1 Percent
reaching an all time high of 120.6 Percent in December of 2012 and a record low of 48.5
Percent in December of 2000. Generally, Government debt as a percent of GDP is used by
investors to measure a country ability to make future payments on its debt, thus affecting
the country borrowing costs and government bond yields

The Spanish Economy
Spain
Spain has the thirteenth largest economy by nominal
GDP in the world
The Spanish economy is the fifth-largest in the European
Union, and the fourth-largest in the Eurozone, based on
nominal GDP statistics

Outline
The Highs and Lows of the Spanish Economy
Accession to the EU
Population and migration
Employment
Tourism
Energy resources
10 October 2011
31
10 October 2011
32
Highs and Lows
of the Spanish
Economy
The Highs
High-income country (US$ 30475, PPP 2008)
High Human Development Level (0.863, #20)
Especially high in Health (0.970)
Life-expectancy at birth = 81.3 years
Universal Social Security system
Tourism attraction (2
nd
Internat. destination)
Green technologies
10 October 2011
33
The Lows
High unemployment (> 20%)
Lower competitiveness
External deficit
Weak Research & Development
Low entrepreneurship
20082013 economic and financial crisis


10 October 2011
34
10 October 2011
35
Spain in the
European
Union
Accession to the EU
Application in 1977
Accession in 1986
Change of reference framework
Single Market implementation
Project for a single currency
Launch of the Euro (1999)
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36
Financial support
10 October 2011
37
European Funds paid to Spain (1986-2006): 1,8% GDP
A) EAGGF-Guarantee and others (45% of total)
B) Structural Funds (55% of total)
1. ERDF (50% of structural funds)
2. ESF (22%)
3. EAGGF-Guidance & Fisheries (15%)
4. Cohesion Fund (13%)
Net balance between Spain & EU (1996-2996): 1% GDP
Estimated effect of European Funds on Spanish growth and income
Without funds With funds
Annual growth of GDP 1988-2006 2,37% 2,75%
GDP per capita 2006 (EU-15=100) 83,61% 89,39%
NET BALANCE BETWEEN SPAIN AND EU
(1996-2006):

1% of GDP


NET BALANCE BETWEEN SPAIN AND EU
(2007-2013):

0.2 % of GDP
Net balance
10 October 2011
38
GDP of Spain
The GDP of Spain in 2012 is $$1.388 trillion
(2012 est.)
GDP growth rate of Spain
10 October 2011
41
Population and
migration
Population and migration
Low population growth since early 1980s
Ageing of the population
Duality in the labour market
High unemployment
Positions not covered
Immigration growing very quickly
10 October 2011
42
Population in Spain (July 2013 est.) = 47370542 (29
th
in world)
Large internal differences
EU-15 EU-25 EU-27
(2007
)
120.9 117.3 114.8
Spains population
10 October 2011
43
Economic effects
Supply: less flexibility
Demand: Slower growth + increased expenditure
Welfare state: increased dependency
Problems of
Population
ageing
Increased
expenditure
Stagnated
Demand
Older
labour
force
Increased
dependency
Population ageing
10 October 2011
44
The opening of borders to an
integrated immigration has the
following benefits:
1. Increased birth rates
2. Pensions are guaranteed
3. Positions not-wanted by
Spanish workers may be
occupied
4. Increase in consumption and
trade and, therefore, general
economic growth
Immigration
10 October 2011
45
Foreign population in
Spain
Year persons % total
1981 198 042 0.5%
1986 241 971 0.6%
1991 360 655 0.9%
1996 542 314 1.4%
1998 637 085 1.6%
2000 923 879 2.3%
2001 1 370 657 3.3%
2002 1 977 946 4.7%
2003 2 664 168 6.2%
2004 3 034 326 7.0%
2005 3 730 610 8.5%
2006 4 144 166 9.3%
2007 4 519 554 10.0%
2008 5 220 600 11.3%
2009 5 598 691 12.0%
2010 5 747 734 12.2%
2011 5 730 667 12.2%
10 October 2011
46
Employment
Changes in labour market
Increased participation of women
Growth in tertiary sector employment
Duality (permanent vs. fix-termed contracts)
Low productivity
10 October 2011
47
Activity rate by gender
(% of population over 16)
1977 1980 1985 1990 1995 1999 2007 2010
Total 50.3 48.7 47.5 49.4 49.0 50.2 58.9 60.0
Male 75.2 72.1 67.3 66.7 62.7 63.1 69.3 68.1
Female 27.5 27.1 27.8 33.4 36.2 38.4 48.9 52.3
0
10
20
30
40
50
60
70
80
Source: EPA
Participation of women
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48
20.6
18.3
8.8
5.3
27.7
24.4
20.6
17.3
9.9
7.3
9.5
12.4
41.8
50.0
61.0
65.0
0 10 20 30 40 50 60 70
1977
1985
1995
2005
Services Construction Manufacturing Agrarian
Source: EPA
Employment by sector
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49
Source: EPA
Employment by sector
10 October 2011
50
4.0
4.2
4.3
15.8
14.7
14.1
12.1
10.0
8.9
68.1
71.1
72.6
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0
2008
2009
2010
Services Construction Manufacturing Agrarian
10 October 2011
51
Tourism
Several different activities included

Approximation by Hostelry (% of total economy):
Direct Effect: > 7% of GDP and employment
Total Effect (direct + indirect): > 10% of GDP and
employment
Contribution to the Balance of Payments
Surplus in tourism activities
Partly compensates the trade deficit
From a low of 33% to a high of 150%
2010: 59% of the trade deficit
Importance of tourism
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52
Spains international position
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53
Spains international position
10 October 2011
54
Export Vs Import - Although Spanish exports seemed to
profit from the single currency, it were the imports that showed the real
growth. This is also a question of lacking economic competitiveness that
needs to be solved by both Spain and the other EU-countries.
10 October 2011
55
Economic health of Greece
Background
Greece achieved independence from the Ottoman
Empire in 1830.
In World War II, Greece was first invaded by Italy
(1940) and subsequently occupied by Germany (1941-
44);
Greece joined NATO in 1952. In 1967 .
In 1981, Greece joined the EC (now the EU); it became
the 12th member of the European Economic and
Monetary Union in 2001.
In 2010, the prospect of a Greek default on its euro-
denominated debt created severe strains within the
EMU and raised the question of whether a member
country might voluntarily leave the common currency
or be removed.
Eurozone and the Entry of
Greece
Eurozone is an economic and monetary union
(EMU) of 17 European Union(EU) member states
that have adopted the euro () as their common
currency.
Convergence criteria for joining the Euro
Stable prices
Stable exchange rate
Sound government finances
Low interest rates
Greece was accepted into the Economic and
Monetary Union by the European Council on 19th
June 2000.
Economic Overview
Greece has a capitalist economy with the
public sector accounting for about 40% of GDP
and with per capita GDP about two-thirds that
of the leading euro-zone economies.
The Greek economy grew by nearly 4.0% per
year between 2003 and 2007.
The economy went into recession in 2009 as a
result of the world financial crisis, tightening
credit conditions, and Athens' failure to
address a growing budget deficit.
The economy contracted by 2% in 2009, and
4.8% in 2010.

Why is Greece in Trouble?
Between 2001 and 2008, Greeces
government borrowed heavily from abroad to
fund substantial government budget and
current account deficits.
Greeces reported budget deficits averaged
5% per year, compared to a Eurozone average
of 2%, and current account deficits averaged
9% per year, compared to a Eurozone average
of 1%.
Greece funded these twin deficits by
borrowing in international capital markets,
leaving it with a chronically high external debt
(116% of GDP in 2009).

Why is Greece in Trouble?
Government spending increased by 87% whereas
revenues increased by 31%.
Public spending soared and public sector wages
practically doubled in the past decade. It has more
than 340bn euros of debt - for a country of 11
million people, about 31,000 euros per person.
Whilst money has flowed out of the government's
coffers, its income has been hit by widespread tax
evasion.
It was given 110bn euros of bailout loans in May
2010 to help it get through the crisis - and then in
July 2011

Causes of Greece Crisis
Greece is facing sovereign debt crisis since it accumulated
high levels of debt during the decade before the financial
crisis when the market was highly liquid.
As the crisis got deepened, there was a liquidity crunch in
the world economy thereby making borrowings difficult as
well as expensive and thereby improper debt repayments
on time.
Reasons
High Government Spending and Weak Government
Revenues
Structural Policies and Declining International
Competitiveness
Increased Access to Capital at Low Interest Rates

GDP of Greece
Greece has a GDP of US$ 310.365 billion (2010).
The GDP of Greece in 2012 is $273.9 billion
(2012 )
GDP growth rate






Countr
y
1999 2000 2002 2003 2004 200l5 2006
200
7
2008 2009 2010
Greece 3 3.8 3.5 4.7 3.7 3.7 4.2 4 2.9 -2 -4.5
Export vs Import - it is clear that the Euro spurred
imports to unbelievable levels in Greece, while the single currency didnt do
anything for Greek exports or competitiveness (rather the opposite)
Impact of energy and oil on GDP
Inflation based on CPI
Inflation as on November 2011- 2.93%.

Historical Inflation
Trade Scenario
Greece reported a current account deficit
equivalent to 1097 Million EUR in September of
2011. Greece remains a net importer of
industrial and capital goods, foodstuffs and
petroleum. The trade with European Union
countries ( Germany, Italy, U.K. ) accounts for
65% of Greek trade.
FDI Scenario
Key Features of FDI
Total (gross) inflows of foreign investment capital
increased in 2010 by 4.96%.
Net inflows of foreign investment capitals during the
same year decreased by 5.82%.
Inflows fell in 2009-10 but were higher than during
2003-05.
In 2010, ratio of FDI in productive categories to that in
M&A improved significantly.
Analysis
This inflow in the form of loans reflects the confidence of
foreign investors for investment in Greece.
There exists a difference between total and net FDI
inflows in 2010 because of repayment of loans to parent
companies and expansion capital. This indicates the
countries role as an investment springboard.
Reforms and reduction of cost of production due to crisis
created investment opportunities.
Debt Management
The debt-GDP ratio 165.3% (2012)
Plans to cut spending further without imposing new
taxes.
Salaries and pensions have been slashed.
First bailout package of $147 billion in May 2010
prevented bankruptcy.
Second deal of $174 billion in October 2011 forgives
about about 50% of greece overall debt.

Debt to GDP ratio

Austerity measures
Deep cuts in public spending.
Raised VAT from 19% to 23%.
Increased taxes on fuel, tobacco, liquor and luxury
goods.
Structural reforms.


Impact of Greece crisis on world
economy
US economy
Scenario 1: Mild eurozone recession
would lower US GDP growth by .1 to .2 % point in first
half of 2012.
Scenario 2: Financial meltdown
would lower US GDP growth by 2.05% points in 2012
and by 2.77% points In 2013 and cause deflation and
rise in unemployment figures.


Indian economy
Negative impact on foreign trade
Loss of revenue and jobs in export oriented industries.
If European contagion leads to global slowdown it will impact
Indias trade with other nation also.
This can translate into lower domestic demand.
Greece default?
CONS
Default can expose French and German banks to huge
debt causing credit lockdown.
The Eurozone partners would be reluctant to fund the
Greece debt.
Further, the contagion effect can spread the crisis to
other peripheral economies. Hence the need to contain
it.
Higher prices for imported goods and lower wages are
likely to drive people out of the country.




PROS
If Greece fails to pay its debt, it would also impact other Eurozone
economies and the whole global economy.
There is additional burden on other Eurozone nations to prevent
Greek default.
For Greeks, this would save them from the severe austerity
measures.
This would liberate from Eurozone fixed exchange rate allowing it
to become more competitive exporter and even more attractive
tourist destination.
Proposed Solutions
Fiscal Union across Eurozone.
Joint issue of Euro bonds.
European stability mechanism.
Raise countrys level of savings.
Thank you