Euro-Zone Crisis and Its Impact on India

Topics: European Union, Monetary policy, Euro Pages: 6 (2058 words) Published: July 29, 2012
Euro-Zone crisis and its impact on the Indian Economy

“The European Union (EU)  is an economic and political entity and confederation[1][2] of 27 member states which are located primarily in Europe.” “Austria, Belgium, Bulgaria, Cyprus,CzechRepublic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg,Malta,the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.[3] The Union's membership has grown from the original six founding states—Belgium, France, (then-West) Germany, Italy, Luxembourg and the Netherlands—to the present-day 27 by successive enlargements as countries acceded to the treaties and by doing so, pooled their sovereignty in exchange for representation in the institutions.”[4] “EU policies aim to ensure the free movement of people, goods, services, and capital,[5] enact legislation in justice and home affairs, and maintain common policies on trade,[6] agriculture,[7] fisheries and regional development.”[8] THE EUROPEAN SOVEREIGN DEBT CRISIS

“The European sovereign debt crisis resulted from a combination of complex factors, including the globalization of finance; easy credit conditions during the 2002–2008 period that encouraged high-risk lending and borrowing practices; the 2007–2012 global financial crisis; international trade imbalances; real-estate bubbles that have since burst; the 2008–2012 global recession; fiscal policy choices related to government revenues and expenses; and approaches used by nations to bail out troubled banking industries and private bondholders, assuming private debt burdens or socializing losses.” [9][10] “In the early mid-2000s, Greece's economy was one of the fastest growing in the euro-zone and was associated with a large structural deficit.”[11] As the world economy was hit by the global financial crisis in the late 2000s, Greece was hit especially hard because its main industries — shipping and tourism — were especially sensitive to changes in the business cycle. The government spent heavily to keep the economy functioning and the country's debt increased accordingly. “On 23 April 2010, the Greek government requested an initial loan of €45 billion from the EU and International Monetary Fund(IMF), to cover its financial needs for the remaining part of 2010.[12][13] A few days later Standard & Poor's slashed Greece's sovereign debt rating to BB+ or "junk" status amid fears of default, in which case investors were liable to lose 30–50% of their money.[14] Stock markets worldwide and the Euro currency declined in response to the downgrade.”[15] “While the sovereign debt increases have been most pronounced in only a few Euro-zone countries they have become a perceived problem for the area as a whole.[16] In May 2011, the crisis resurfaced, concerning mostly the refinancing of Greek public debt.[17] The Greek people generally rejected the austerity measures and have expressed their dissatisfaction with protests.[18][19] In late June 2011, the crisis situation was again brought under control with the Greek government managing to pass a package of new austerity measures and EU leaders pledging funds to support the country.[20]” In May 2012 the crisis escalated to new levels following the national Greek legislative election, May 2012.

Europe and India have strong dependencies on each other where the fate of one can decide other’s destiny. Considering business relations, it is pretty obvious that in the wake of the Euro zone crises, the interlink trade will be deeply impacted. Exports will be adversely affected and consequently our Foreign reserve. Now let us analyze the impact of Euro-Zone crisis on the Indian Economy. Negative Impacts

* Almost 16.66% of the India’s total exports are directed to Europe. The crises if not handled will create huge monetary losses to most the industries like Textiles (holds about fifth of the total exports to Europe). These...
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