group 3 si europe crisis

8/3/2019 GROUP 3 SI Europe Crisis

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Europe Crisis: How this could be

resolved

Strategy Implementation

-Prof. R Kannan

Group 3

021 - Deepak R. Divecha

025 Vishal Doshi

032 Ratna Gandhi

056 Arnab Maiti061 Sameer Mayekar

077 Deepti Patel

090 Ranjith Bhanu

110 Pooja Thawani

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Content

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Basic Information on EU

Objective:

Understand the Europe Crisis, what is the status of the same currently,

why is it like that and how it can be resolved

The Outlook (what part of objective)

Cause (Why part of objective)

Recommendation (How part of objective)


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Brief Information European Union

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1945 1959: A Peaceful Europe: the beginning of co-operation

The European Union is set up with the aim of ending the frequent and bloody

wars between neighbours, which culminated in the Second World War. As of

1950, the European Coal and Steel Community begins to unite European countries

economically and politically in order to secure lasting peace. The six founders are

Belgium, France, Germany, Italy, Luxembourg and the Netherlands

1960 1969: The Swinging Sixties: a period of economic growth

It is a good period for the economy, helped by the fact that EU countries stop

charging custom duties when they trade with each other. They also agree joint

control over food production, so that everybody now has enough to eat - and

soon there is even surplus agricultural produce

1970 1979: A Growing Community: the first enlargement

Denmark, Ireland and the United Kingdom join the European Union on 1 January

1973, raising the number of member states to nine


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Brief Information European Union

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1980 1989: The Changing Face Of Europe: the fall of Berlin Wall

In 1987 the Single European Act is signed. This is a treaty which provides the basis

for a vast six-year programme aimed at sorting out the problems with the free-

flow of trade across EU borders and thus creates the Single Market

1990 1999: A Europe without Frontiers

With the collapse of communism across central and eastern Europe, Europeans

become closer neighbours

2000 today: A decade of further expansion

Euro became the new currency


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Brief Information Europe Union

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Member states of the EU (year of entry)Year Country Year Country Year Country

1952 Belgium 1981 Greece 2004 Hungary

1952 France 1986 Portugal 2004 Latvia

1952 Germany 1986 Spain 2004 Lithuania

1952 Italy 1995 Austria 2004 Malta

1952 Luxembourg 1995 Finland 2004 Poland

1952 Netherlands 1995 Sweden 2004 Slovakia

1973 Denmark 2004 Cyprus 2004 Slovenia

1973 Ireland 2004 Czech Republic 2007 Bulgaria

1973 United Kingdom 2004 Estonia 2007 Romania


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Outlook Europe Crisis

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The euro-zone is facing the dangerous combination of a sovereign debt and banking

crisis. Politicians, economists and central bankers are attempting to solve this but the

outcome will not be clear for some time meanwhile the noise and uncertainty

continues.

So far:

Banks have been told to prepare contingency plans for the break up of the eurozone ,

some are at risk from the current instability in European capital markets.

Stronger austerity measures are being introduced that will impact both government

spending and are already changing consumer behaviour in the countries affected.

Capital is moving towards safer havens as Euro deposits are reduced and transferred

away.

Risk of disruption, unrest and fraud have all increased in the most affected countries.

Large number of European companies face the challenge of refinancing their activities

in the face of this crisis over the next 12 months.


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Head of the IMF says there is a risk of a 'lost decade'

David Cameron warns crisis is placing Britain in 'clear and present danger'

Italy debt is so large it cannot be bailed out

Markets across the globe fall in response to the news

Worries France could be next country to fall victim

The size ofItalys debts mean it is widely considered too big to bailout, unlike Greece,

Ireland and Portugal.

There is not enough cash in a eurozone bailout fund even for an initial rescue package,

which economists believe would cost at least 550billion

As the debt crisis in Italy escalated, the euro fell 2.2 per cent against the U.S. dollar in its

worst one-day fall for 15 months


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Causes Europe Crisis

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Eurozone had agreed in 1997, to the

same limit their governments' borrowing

each year to just 3% of their economies'

output

Italy was the worst offender. It regularly broke the 3% annual borrowing limit. But actually Germany -

along with Italy - was the first big country to break the 3% rule. After that, France followed. Of the big

economies, only Spain kept its nose clear until the 2008 financial crisis; the Madrid government stayed

within the 3% limit every year from the euro's creation in 1999 until 2007

The eurozone has

agreed a new "fiscal

compact"

Eurozone leaders have

agreed to a tough set of

rules - insisted on by

Germany - that will limit

their governments'

borrowing each year to

just 3% of their

economies' output


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10 List your points here..we can consolidate

But the debt had nothings to do

with govt borrowings, private

sector as seen in bar graph was

borrowing. . Instead it was the

private sector - companies and

mortgage borrowers - who were

taking out loans. Interest rates hadfallen to unprecedented lows in

southern European countries when

they joined the euro. And that

encouraged a debt-fuelled boom

The borrowing graph actually

shows the Germany is safe

heaven market despite of high

borrowings and Italy & Spain in

trouble.


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Imbalance struck: things went in

favor of Germany and had

adverse effect on southern

europe:

Germany became an export

power-house after the eurozone

was set up in 1999, selling far

more to the rest of the world(including southern Europeans)

than it was buying as imports.

That meant Germany was earning

a lot of surplus cash on its

exports. And guess what - most of

that cash ended up being lent to

southern Europe

But debts are only part of the problem in Italy and Spain.

During the boom years, wages rose and rose in the south

(and in France). But German unions agreed to hold their

wages steady. So Italian and Spanish workers now face a

huge competitive price disadvantage


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Nasty dilemma: the government borrowing had very little to do with the current crisis in

eurozone. So to recap, government borrowing - which has ballooned since the 2008 global

financial crisis - had very little to do with creating the current eurozone crisis in the first

place, especially in Spain (Greece's government is the big exception here). So even if

governments don't break the borrowing rules this time, that won't necessarily stop a

similar crisis from happening all over again.

Spain and Italy are now facing nasty recessions, because no-one wants to spend.

Companies and mortgage borrowers are too busy repaying their debts to spend more.

Exports are uncompetitive. And now governments - whose borrowing has exploded since

the 2008 financial crisis savaged their economies - have agreed to drastically cut their

spending back as well

Cut Spending

...and you are pretty sure to deepen therecession

Do NOT Cut Spending

... ...and you risk a financial collapse


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The Making of a Crisis

1. Confidence in the prospects for growth and stability of the economies of Greece,

Ireland, Italy, Portugal, and Spain (GIIPS) surged when the euro was introduced,

causing their interest rates to decline to those of Europes more stable members.

2. Improved confidence and lower interest rates drove up domestic demand in the GIIPS

and investors and consumers have increased spending and run up debts, often owed

abroad as foreign capital flowed in.

3. Growth accelerated and the prices of domestic activities rose relative to the price of

exportable or importable products, attracting investment into the less productive non-

tradable sectors and away from exports and industries competing with imports.

4. Meanwhile, exports rose sharply as a share of GDP in Germany due to Growingdemand in the GIIPS enabled these core countries to increase exports. The adoption of

a common currency made their exported goods more affordable.


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5. The domestic demand boom in the GIIPS induced rapid wage growth that outpaced

productivity, increasing unit labor costs and eroding external competitiveness further.

6. The emergence of China, as well as currency depreciation and rapid labor productivity

growth in the export sectors of the United States and Japan, added to the

competitiveness problems of the GIIPS.

7. The single European monetary policy was too loose for the rapidly growing GIIPS

(Spain, Greece, and Ireland) and too tight for Germany, whose domestic demand and

wages grew very slowly compared to the European average. This reinforced the loss of

competitiveness in the GIIPS.

8. Lower borrowing costs and the expansion of domestic demand boosted tax revenues

in the GIIPS. Instead of recognizing this as temporary revenue and saving the windfall

gains for when growth slowed, GIIPS governments significantly increased spending.

Blatant fiscal mismanagement added to the problems in Greece.


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Company Strategy

To Survive Europe Crisis

Five practical strategies

In our view there are five key areas in which to take action:

Act Now:

1. Immediate defensive actions

2. Immediate trading response

Plan Now:

3.Continuity and contingency planning

4.Group-wide consequences

5.Advantage from operating in a fundamentally different environment


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Company Strategy

To Survive Europe CrisisAct Now:

1. Immediate defensive actions:-

Act to minimise risk and increase balance sheet resilience in the event of a large scale

default and Euro exit scenarios this includes a wide range of treasury actions,

reviewing financing and funding positions.

Change policy and process to enhance the visibility and control of credit exposures by

country and customer. Review policies and contractual terms for customers and

suppliers when writing new business.

Reassess critical suppliers for failure risk & develop appropriate mitigation plans.

Amend appropriate controls and authority levels.

Consider what business processes are required to ensure that the management team

is able to monitor the situation as it develops, take decisions quickly and communicate

effectively and widely.

Prepare contingency and continuity plans.


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Company Strategy

To Survive Europe CrisisAct Now:

2. Immediate Trading response:-

Grip cash flow. Have cash flow forecasts to give the best possible forward

visibility of cash inflow and outflow in affected countries.

Respond to the changing market and act to protect cash flow and

profitability in affected countries. This includes considering routes to market,

terms of business with customers and suppliers and changes in pricing and

product mix.

Review budgets and business plans.

Prepare response plans now and do not leave the planning until trading has

fallen off.


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Company Strategy

To Survive Europe CrisisPlan Now

3.Continuity and contingency planning :-

Plan for the worst. With the level of uncertainty, business continuity and contingency

plans should be revisited or created.

Produce triggered response plans. Given the range of possible outcomes it is notpractical to create a contingency plan for each one

Implement appropriate governance. Decision structures and governance for

controlling and monitoring the situation are often overlooked but vital.


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Company Strategy

To Survive Europe Crisis

Further:

75 % of the 20-64 aged population should be employed

3 % of EU GDP to be invested in R & D


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References

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http://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/

Advisory/eurozone-crisis-five-practical-strategies.pdf

http://europa.eu/about-eu/eu-history/index_en.htm

http://www.bbc.co.uk/news/business-16301630

http://www.dailymail.co.uk/news/article-2058868/Italy-economic-crisis-Fears-UK-

dragged-second-recession.html

[email protected]


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