Before one to could even think of the end of great recession of 2008, Greece gave birth to another crisis.

Greece debt crisis is actually an evolution of the global crisis. Greece allowed deficits from Central bank and government bonds to pile up. Greece debt came to light in 2009.

Sovereignty

having supreme independent authority over a territory supreme law making authority

Debt

Debt is that which is owed Moral obligation not requiring money

When the debt level increases to a level that it cant be repaid This can even lead to lower economic growth and worsen the situation of the economy in terms of recession.

Crisis

Sovereign debt crisis is a situation wherein a country with a powerful higher authority enters the state of not being able to repay its debts and obligations. This leads to higher fiscal deficit of the economy and lower growth.

It is an economic and monetary union of 16 European union members. Adopted EURO currency as their sole legal tender. The European Central Bank (ECB) is the institution of the European Union (EU) tasked with administrating the monetary policy of the 16 EU member states taking part in the Euro zone. MembersAUSTRIA,BELGIUM,CYPRUS,FINLAND,FRANCE,GER MANY,GREECE,IRELAND,LUXEMBOURG, MALTA,NETHERLANDS,PORTUGAL,SLOVAKIA, SPAIN,SLOVENIA.

Maintain stability and prevent crisis in international monetary system. Provides advice to its 184 member countries and raising their living standards. Serve as a forum where they discuss national, regional and global consequences. Temporarily financing its members countries to assist them.

The European debt crisis came into limelight with

Greece.

This was done by the new government who took charge after the general elections.

Shocking role of Goldman Sachs in the fraud.

New government revealed the facts which actually happened in which the previous government had

overspent and also reported a debt which ballooned

to 12.7% of the GDP.

A crisis in an economy impacts other economies via three channels 1. Trade Channel 2. Financial Channel 3. Confidence channel

When an economy falls into a recession, it impacts the affected countrys trading partners too Falling household and business demand in the slump-hit economy hits the exports/imports of its trading partners.

The share of exports to EU (excluding UK) and imports from EU has fallen over the years. In 1987-88, exports to EU constituted about 18.6% of total exports. This has declined to 17.5% by 2008-09. The decline of imports is higher from 25% in 1987-88 to 12% in 2008-09. Hence, total trade between India and EMU is about 29.5% and could be impacted due to the crisis

World merchandise exports declined in 2010 by 12%, while the GDP came down by 2.4%. The decline in trade was on account of weaker demand due to the slow global recovery from the financial crisis and the Euro debt crisis of 2010.

In FY10, the emerging countries like India and China saw higher capital inflows as investors flew to safer havens. China overtook Germany as the lead exporter of merchandise. India was ranked the 21st exporter of merchandise. Chinas share in world merchandise imports increased to 7.9% in FY10 resulting in China becoming the 2nd largest world importer and India stood at the14thposition.

Indias share in world merchandise exports has increased from 0.8% in FY04 to 1.3% in FY10. Similarly, Indias share in world merchandise imports rose from 0.9% in FY04 to 2% in FY10. European Union (EU), a block of 27 countries, is one of Indias largest trading partner. EU comprised 21% of Indias exports and 13% of Indias imports in the first nine months of FY11.

The growth in trade between India and the EU has been remarkable. The average annual growth rate of Indias exports to EU is 18% and Indias imports from the EU region is 19.5% between FY01 and FY10. Among the EU countries, Germany is the largest importer of Indian goods with 3.4% of Indias exports in FY09, which declined to 3% of Indias exports in FY10. Germany is also the largest exporter to India among the EU countries with 4% of Indias imports, which declined to 3.6% of Indias imports.

In FY10, EU-India trade moderated to US $ 95 bn on account of the European debt crisis, where spending cuts across Europe led to import order cancellations and postponement by some of the European countries. It has been observed, from historical data and certain indicator analysis, that the share of EU region in Indias trade is not very high and hence the impact of the EU crisis has only marginally impacted Indias trade.

Three kinds of financial flows could impact Indian financial markets: a. Foreign Direct Investment b. Foreign Institutional Investment c. External Commercial Borrowings d. Remittances and foreign deposit

There are many European companies which have investments in India. So, there could be a possibility of slowdown in FDI in India Top 15 FDI investors in India which constitute about 92% of total FDI In case of India, FDI inflows remained positive throughout the crisis. The FDI inflows actually helped keep maintain capital account when all other categories showed sharp decline.

With a turmoil in global financial markets, FII inflows will decline We have a large number of global financial firms which operate across the world and in case of a decline in one major market, there is a pull out from other markets as well.

External commercial borrowings could also decline if the European crisis spreads to other economies. ECBs declined in the first stage of the crisis as well

Another important flow is NRI deposits and Remittances. Former shows whether NRI depositors withdrew funds in wake of crisis and latter shows whether Indians living abroad stopped sending funds to their homes again because of the crisis The deposits increase in the crisis periods Oct-Dec 2008 and Jan- Mar 2009 and decline thereafter

It could be that NRI preferred to invest higher proceeds in India seeing crisis in their own economies! In case of remittances, we see a decline in crisis period Oct 08 Mar 09 but see improvements as crisis eases

There were huge concerns of remittances collapsing because of the crisis. In some countries they did collapse worsening poverty status. In India, despite the decline it manages to remain in positive.

Again like in the trade channel, the impact of financial markets could be more via the indirect linkage. Financial markets are far more integrated than the trade channel

This channel shows confidence declines in business and households seeing the global uncertainty Decline in confidence is also one of the reasons for decline in business investments which led to decline in overall Indian GDP growth. Credit growth also declined because of decline in business investments.

Even if an economys macroeconomic conditions and outlook look favorable, the decline in confidence can disrupt the economic conditions

Domestic banks can lend to companies in other economies as well. A problem in latter could lead to worsening of the conditions of domestic banks/financial firms as well (this was seen in the case of Swedish banks). Banks are at the center of the international trade as they provide trade finance and other financing facilities that facilitate trade. A problem in financial markets will disrupt the international trade as well.

Stability in Pricing, slowdown in hiring and tough negotiations by the clients is expected and all the vendors are preparing for such scenario. IT sectors strong correlation with US earnings growth leads to moderate volume growth with stable pricing .

Europeans coming to India, as they will start travelling within Europe and take short holidays Business travel is likely to be hit more than leisure tourism

Sensex rose 623 points , biggest gain in 22 months, From 17823.4 to 18446.5

The reason behind this rise was

Governments lower-than-expected fiscal deficit estimate for 2011-12 The government pledged to contain fiscal deficit in 2011-12 at 4.6% of GDP compared with 5.1% in 2010-11 But the rising crude oil prices raise doubts on whether the government would meet its budget shortfall target, so the investors were a bit sceptical.

Sensex fell by 371 points to 16,469.79, its lowest level in nearly 15 months.

The reason for this drop

European markets fell sharply amid deepening fears of major global economies, including the US dipping into recession again Renewed Eurozone debt crisis also dragged the index down

SENSEX ended the day 513.19 points higher at 18,240.68

Reasons Greece won the consent of international lenders for a five-year austerity plan intended to avoid looming bankruptcy Its prime minister pledged to push radical economic reforms through parliament. JPMorgan and Goldman Sachs slashed forecasts for crude prices in the third quarter after the International Energy Agency announced the release of 60 million barrels of oil

The SENSEX continued to fall and closed at 16745.35

The SENSEX continued to fall and closed at 16745.35

Investors feared a Greek default within weeks after International lenders told Greece on Monday that it must shrink its public sector and improve tax collection to secure a vital 8 billion euro rescue payment Greece's prime minister cancelled a US trip to chair an emergency cabinet meeting at home German Chancellor Angela Merkel suffered a regional election loss EU finance ministers also failed to make progress on the debt crisis

The BSE Sensex shot up 354 points to cross the 17k mark to reach 17099.28

The reasons Hope of weakening rupee would boost earnings of the IT companies and a firm global trend Infosys, rose by 3.22% and TCS gained 3.94% Greece expected to clinch the release of a 8 billion euro ($11 billion) aid that it needs to avoid running out of cash next month. S&P downgraded its rating on Italy by one notch to A/A-1 but European Central Bank buying Italian debt also aided the sentiment. Britain's FTSE was up 1.22 percent at 5,323.93 points

The reasons Hope of weakening rupee would boost earnings of the IT companies and a firm global trend Infosys, rose by 3.22% and TCS gained 3.94% Greece expected to clinch the release of a 8 billion euro ($11 billion) aid that it needs to avoid running out of cash next month. S&P downgraded its rating on Italy by one notch to A/A-1 but European Central Bank buying Italian debt also aided the sentiment. Britain's FTSE was up 1.22 percent at 5,323.93 points

The reasons Fresh signs of slowdown in manufacturing activities in China and Germany. IMF warned that Europe's sovereign debt crisis risks tearing a giant hole in banks' capital. In Europe, questions about the ability of the euro zone to manage some of its countries' heavy debt remain, stock losses amounted to a fall of over 21 percent for the year-to-date. The slide was further aggravated by the weakness of the Indian rupee. The FTSEurofirst 300 fell more than 4 percent, FTSE 100 lost 5 percent

Sensex jumped 472.93 points or 2.95% to 16,524.03

The events that led to the rise are Hope of euro zone officials would act to corral Greece's debt woes and prevent another banking crisis. The parliaments of Finland and Germany were set to vote on the approval to extend the powers of the euro zone rescue fund considered critical to bailing out Europes weak economies. The new plan was to leverage the 440-billion rescue fund, known as the European Financial Stability Facility (EFSF), to help struggling European nations avert debt defaults A positive opening at European markets also helped buying sentiments.

Reasons for low impact on Indian economy

The slow pace of financial reforms taking in India Cautious approach towards permitting foreign investments in Indian business sectors Bureaucratic hurdles & regulatory constraints Indian companies have major outsourcing deals with American & European companies. Indias export to US and European countries has grown substantially in the past few years.

Full but gradual opening of current account. Capital account and financial sector: More calibrated approach towards opening up. Equity flows encouraged Debt flows subject to ceilings and some enduse restrictions. Capital outflows: progressively liberalized

External commercial borrowing is subject to Strict rules and regulations.

Macro ceiling stipulated on portfolio investment in Govt. Securities and Corporate Bonds by FIIs. Imposition of prudential limits on Banks, such as inter-bank liabilities, borrowing and lending, money market, assets Implementation of Basel II. Banks credit quality remained high. Less percentage of NPA .