Presentation on theme: "August 2013. This presentation will attempt to answer such questions as: What is the Euro? Why do we have a crisis? Why does it affect Greece in."— Presentation transcript:
This presentation will attempt to answer such questions as: What is the Euro? Why do we have a crisis? Why does it affect Greece in particular?
What is the Euro? It is the official currency used by 23 European countries - but not the UK! But of these only 17 countries are in the Euro zone This makes the Euro second to only the US dollar in its usage
The key countries in terms of economic size are Germany France Spain Italy The picture is of the 1 Euro coin
What is the Euro? It was launched in 1999 in a non monetary form e.g. bank transfers It was launched in 2002 as notes, coinage etc The symbol of the euro is €, the letter "E" with one or two cross lines
The Euro zone is an economic and monetary union For some countries, it was a key step towards a political union - France and Germany were very keen having been at war twice (WW1 + 2) A political union would make federations of European countries similar to United States This loss of political power is not acceptable to UK
To join, countries had to reduce their total debt over time to a % of total economy And Keep their annual deficit (Government spending less Government revenue) within tight limits
The early years went well Prior to the Euro zone the 17 countries had their own currencies They also borrowed at different interest rates e.g. Germany's rate was low as it was seen as a strong economy In the early days, the Euro countries enjoyed the same low interest rates that Germany did, being associated with Germany.
Low interest rates allowed countries such as Ireland and Spain to borrow huge amounts. Note Ireland was not one of the 4 big economies mentioned earlier. The monies were lent to developers to build houses and commercial developments (offices, shops, hotels, golf courses etc) During the 10 years to 2007, Spain increased its number of houses by 25%! Its population grew only 2.5% over the same period!
For a period Germany, in wanting to be more competitive, held back wage increases with agreement with the unions. This helped its exports to remain competitive. Several other countries especially in the South of Europe did not hold back wages and became less competitive. This affected their ability to export. Note: there is a northern versus southern European division.
Why do we have a crisis? We need to understand the credit crunch of 2008 and its impact world wide Also the measures taken by various Governments to tackle the impact of the credit crunch We will study this in a separate presentation
Why does it affect Greece in particular? Greece has been the most affected in various ways Even though it has a small economy compared to many in the Euro zone It has a large public sector With generous pay awards to its staff And gives generous social benefits to pensioners and others, thus increasing Government expenditure
Why does it affect Greece in particular? Because it hid large amounts of debt so it qualified to join the Euro. Even so, its debts are not huge compared to the Euro zone as a whole. Because it struggles more than many to get its people to pay taxes so hitting its revenues Because it became less competitive so fewer exports Possibly because the Olympic Games of 2004 left it with large debts
Why does it affect Greece in particular? Concern that if Greece defaults on its loans then other countries might follow. Concern that it has had help (at a price!) but Greece is still struggling. Concern that the cut backs in Government spending and increased taxes have led to a deeper recession and high unemployment. Concern that the public are protesting against the measures.