PowerPoint Presentation

D. Kiran SaiMBA

They are barriers between countries to do business.

Countries to do business must pay exchange fee and also tariff fee.

So to avoid this the countries decided to bring down the barriers which resulted positively.

This gave an idea of unified europe a union across the continent.

Maastricht Treaty was signed by leaders of 12 nations.

Finally Europen Union has been formed this made doing business cross border easier.

But one major obstacle that is having different currencies.

A decade later on january 1,1999 Euro has been formed.

This discontinued all their currencies and also their monetary policies.

But they all have different fiscal policies.

The whole countries adapting euro are now known as Euro zone.

In euro zone the countries can get loans (or) borrowings at very low interest rates.

They formed a centralised bank such as European Central Bank (more commonly known as ECB).

Different fiscal policies are the key factors to the present debt crisis.

Monetary policy controls the supply of money such as how much money is in the economy and what are the interest rates on borrowings.

Fiscal policy which explains us how a government collects taxes and how much it spends, the spending of money beyond tax collection leads to borrowing which is known as Defecit Spending.Reasons for crisisExcessive expenditures.Mismanagement.Unregulated labour market.Obsolete pension system.Improper debt repayments on time.

These reasons lead to,Rising unemployment.Tax evasion.Government expenditures increased by 87%,revenues grew by only 31%.

Fall of GDP after 2007 crisisAusterity MeasuresGermany agreed to bailout the debter countries only on promise of maintaining strict austerity measures in their country.

Such Cutting spending,borrowing less and paying more debt.

Cutting governments spending which leads to less earnings to the people.

This ultimately leads to unemployment.

Fiscal union (or) Break up:The euro area requires a fiscal union which matches monetary union.

Fiscal union must have authority to cut spending,raise taxes and set laws.

A fiscal union like this could actually prevent excessive borrowing and spending.

Recent austerity amendments:There is a420weekly limit on withdrawalsto prevent depositors from draining their accounts, worsening the problem.

On July 15, the Greek Parliament passed theausterity measuresneeded toreceive the86 billion loan from the EU.

These are the same measures Greeks voted against ten days ago, so it was despite high opposition.

Nevertheless, everyone realizes there really is no choice. Prices will rise for the average Greek as a result.

Greece mustincrease the VAT tax, close tax loopholes, reduce tax evasion, and raise the corporate tax rate.

Conclusion

As we discussed due to over public expenditure and over borrowed. Now Greece is in a verge of default.Now greece government is taking tight austerity measures to bring down deficit to 0.9% of GDP by 2015.But due to excessive expenditure cut & unemployment,the disposal income(savings) of public will be reduced.The EU,IMF and ECB lending to greece to solve he underlying problem.But the maximum money is spent for repayment of debt not for productive use.Though they are pumping money in greece, they are not sure about the future of greece ecoomy.Now the condition is in a dilemma whether to save greece or let it go default.