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IMPACT of
CRISIS
INTORDUCTION
Historically, financial crisis tend to lead to sharp economic downturns, low government revenues, widening government deficits, high levels of debt, pushing many governments into defaults. This is called SOVEREGIN DEBT CRISIS. The Euro zone is facing a serious sovereign debt crisis. Several Euro zone member countries have high, potentially unsustainable levels of public debt. ThreeGreece, Ireland, and Portugalhave borrowed money from other European countries and the International Monetary Fund (IMF) in order to avoid default. With the largest public debt and one of the largest budget deficits in the Euro zone, Greece is at the center of the crisis. GREECE is currently facing this, it accumulated high levels of debt during the decade before the crisis, when capital markets were highly liquid. As the crisis has unfolded and there was liquidity crunch in world economy, Greece may no longer be able to rol over its maturing debt obligations
The income and savings had a downward trend worldwide after the subprime crisis unleashed. This has deduced Revenues for the country. The world market had started recovering but we can say they are now in bullish run, these haky Stock Markets had a cumulative effect. The reduced savings and lack of confidence among investors has resulted in lower Investment Flows After the sub-prime bubble burst, tricter requisites or bank loans / higher ateshave been followed globally. This all had a cumulative negative effect as; There was a Drop of tourist arrivals. Also, Negative impact on exports and international sea transport
SPECULATION As Euro was the second best Foreign exchange reserve currency (with approx 25% holdings), there was increased Hedge funds betting against Greece / Euro Numerous negative media reports stating the financial status of the country had pushed it towards the danger zone. Unclear messages by foreign officials / executives have further added fuel to the situation. The 3 biggest rating agencies downgraded Greece, Greeces rating with Moodys stands at A2 and with Fitch and S&P two notches lower at BBB+ The borrowing rates for Greece skyrocketed.
The 3 biggest rating agencies downgraded Greece, Greeces rating with Moodys stands at A2 and with Fitch and S&P two notches lower at BBB+. The borrowing rates for Greece skyrocketed. Euro was hit as fears for crisis expansion in other European countries including Portugal, Ireland, Italy and Spain (GIIPS). And so the whole Eurozone was put to test. The panic grew worldwide, when the Greek economy makes up only 2.7% of the Eurozone GDP and 3.9% of its debt.
European Integration
GREECE'S CRISIS HAS BROUGHT TO LIGHT IMBALANCES WITHIN THE EURO ZONE
Mismatch between the EUs advanced economic and monetary union and an incomplete political union. Even within the economic areas, where the EU is more tightly integrated, the Euro zone has a single monetary policy but 16 separate (if loosely coordinated) national fiscal policie
LARGE FINANCIAL STAKE IN EU The United States has a large financial stake in the EU. The EU as a whole is the United States biggest trading partner and hundreds of billions of dollars flow between the EU and the United States each year
GLOBAL RECESSION
IMBALANCE OF CURRENT ACCOUNT Imbalances between current account deficit and current account surplus countries within the Eurozone are similar to the debates about imbalances between the United States and China. These debates reiterate how the economic policies of one country can affect other countries and the need for
DEPENDENCY OF INDIA TOWARDS OTHER NATIONS Although USA & India trade with Greeks is small but think about the American / Euro Real estate market and world financial crisis back in 2008. Like, back in the 70's & 80's the collapses in real estate prices in American and collapse of the American Savins and Loan industry had little impact on India because there was No ( or little) Indian
ECONOMIC TRADE BETWEEN INDIA & GREECE As we have seen, Greece in reality has little economic trade with India .The bottom line is India's economy is far more connected and dependent on European American & Middle-Eastern Countries than back in 1982. So another financial crisis in Europe will impact India
EURO AS THE 2ND BEST FOREIGN EXCHANGE RESERVE World still holds the US-$ as the majority of their foreign exchange reserves, the Euro is a close second (about 25% of holdings) Since the world reserve currency also acts as the international pricing currency for oil, gold, and other products traded on world markets, the decline of the value and the confidence in the Euro could have a