Today, there are three kinds of people: the have's, the have-not's, and the have-notpaid-for-what-they-have's.

Earl Wilson

The Past Scenario

Euro- The common currency for Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain

Monetary Policy the responsibility of European Central Bank (ECB)

2009- The fear of sovereign debt crisis Culprits- Greece, Poland, Ireland Crisis due to widening bond yields and risk insurance on credit default swaps

The Current Scenario

2, May 2010- IMF and Eurozone countries agreed for 110bn loan

9, May 2010- EFSF set up by 27 EU states

Followed by 85bn debt for Ireland in Nov, 2010 and 75bn for portugal in May,2011 May, 2011- Greek problem surfaces again Greek Public reject austerity measures

The story behind it

When and how did it start

National debt rises to 262 bn from 168 bn 2004 Greece unveils a stability programme Eurozone finance ministers approve 30bn debt S&Ps downgrade of Greece to junk status Greece receives a 14.5 bn loan from the EU Parliament passes pension reform Nov 2009 Dec 2009

Jan 2010

Apr 2010

May 2010

July 2010

The year 2011

Fitch third rating agency to downgrade to JUNK Greece unveils a series of privatizations, part of a goal to

raise 50bn by 2015 Head of the Eurozone finance ministers backs Germany's proposal for a "soft restructuring" of Greece's debt The EU welcomes Greek parliament's vote in favor of a severe austerity package that has sparked strikes Greece can now receive the latest 12bn tranche of a 110 bn loan, instead of defaulting Eurozone finance ministers approve new bailout package for Greece worth 109bn

Aftermath
Ireland, Portugal, Italy, Spain and France also undergo

similar situations like Greece Government Deficit for all these countries in negative as % of GDP Public Debt to GDP more than 100% in most of these countries 10 year government bond yields less than 5%

HOW CREDIT RATINGS WORK?

CREDIT RATING- WHAT IT MEANS

Credit worthiness
Financial indicator Insurance premiums worth

Employment eligibility

POOR RATING MEANS: High risk High interest rates

HOW RATING IS DONE?

Evaluation of qualitative and quantitative

information Not based on mathematical formulas Judgment and experience Political risk Economic risk Payment default risk

THE BIG THREE

S&P
MOODYS FITCH

Impact On India
Mixed Reactions from India I dont think India will be much affected beyond the temporary market jitters and we should still grow at 8.2% - C. Rangarajan, chairman of Indian Prime Minister Manmohan Singhs Economic Advisory Council US and Euro credit rating downgrade may impact India's IT, gems & jewellery exports: FIEO(the Federation of Indian Exporters )

Impact On India (contd)

Rupee value-getting stronger
Exports
-In 2010-11 ,India exported $25.5 billion(from $225 billion )worth of goods to the Euro region

Other Impacts.
Gold Surge in gold prices Tourism 8-10 per cent dip in total inbound tourists Foreign Investments India remains to be attractive destination