The Effect of Euro Crisis on India
Effect of euro crisis on India
EURO CRISIS: The European debt crisis is the shorthand term for Europe’s struggle to pay the debts it has built up in recent decades. Five of the region’s countries – Greece, Portugal, Ireland, Italy, and Spain – have, to varying degrees, failed to generate enough economic growth to make their ability to pay back bondholders the guarantee it was intended to be. Although these five were seen as being the countries in immediate danger of a possible default, the crisis has far-reaching consequences that extend beyond their borders to the world as a whole.
As the world braces for a probable Greek exit from the Eurozone as part of the latest development in the Eurozone sovereign debt crisis, it is prudent to take stock of the situation and of the effect it might have on India. It is only wise to be prepared for the worst after the unsavoury experience of 2008 and 2009 during which many professionals were laid off in different parts of the country though the economy was not significantly affected.
The resilience of the Indian economy is very often cited by many in advocating the 'India is insulated from the Eurozone crisis' theory. In my view, that is a myopic view. The 2008-09 global meltdown was a fallout of corporate greed, malpractices and lack of government control. Banks and companies collapsed for their own fault. While the band-aid came in the form of government bail-outs or, in simple terms, socialising private losses, one has to bear in mind that we are no longer looking at the prospect of failing companies or banks. We are looking at prospects of collapse of countries altogether.
If Greece exits Eurozone, the Euro area national central banks and the European Central Bank would stomach big losses, threatening their solvency. Greek debt to these entities total almost 57 billion Euro. There will be a sudden flight of capital from Spanish and Italian banks. Both Madrid and Rome have repeatedly issued fresh government bonds with
EURO CRISIS: The European debt crisis is the shorthand term for Europe’s struggle to pay the debts it has built up in recent decades. Five of the region’s countries – Greece, Portugal, Ireland, Italy, and Spain – have, to varying degrees, failed to generate enough economic growth to make their ability to pay back bondholders the guarantee it was intended to be. Although these five were seen as being the countries in immediate danger of a possible default, the crisis has far-reaching consequences that extend beyond their borders to the world as a whole.
As the world braces for a probable Greek exit from the Eurozone as part of the latest development in the Eurozone sovereign debt crisis, it is prudent to take stock of the situation and of the effect it might have on India. It is only wise to be prepared for the worst after the unsavoury experience of 2008 and 2009 during which many professionals were laid off in different parts of the country though the economy was not significantly affected.
The resilience of the Indian economy is very often cited by many in advocating the 'India is insulated from the Eurozone crisis' theory. In my view, that is a myopic view. The 2008-09 global meltdown was a fallout of corporate greed, malpractices and lack of government control. Banks and companies collapsed for their own fault. While the band-aid came in the form of government bail-outs or, in simple terms, socialising private losses, one has to bear in mind that we are no longer looking at the prospect of failing companies or banks. We are looking at prospects of collapse of countries altogether.
If Greece exits Eurozone, the Euro area national central banks and the European Central Bank would stomach big losses, threatening their solvency. Greek debt to these entities total almost 57 billion Euro. There will be a sudden flight of capital from Spanish and Italian banks. Both Madrid and Rome have repeatedly issued fresh government bonds with