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 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.