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Sunday, July 15, 2012

Euro Zone Crisis Simplified


To what world sees as an alarming danger to the global economy. What is it that has dragged the European countries into a meltdown and stagnated the growth of the developing economies? Is it mere hype created by media institutions or is a juncture of reality? In this article you will explore what is the Euro-Zone crisis or sovereign debt crisis. Before you go into deep insights of this crisis, you must know two major giant groups of Europe viz. European Union and Euro Zone. 


European Union
Established in 1993, currently has 27 member countries of Europe. It was formed to ensure the free movement of goods, capital, services and people in member countries.

Euro Zone
Established in 1999, currently has 17 members countries of Europe. Euro was adopted the common currency for trade, that would help foster the economies of the countries. European central bank is the central authority for administrating the monetary policy of the member states. For countries to remain in Euro Zone, their budget deficit should not exceed 3% of their GDP.
It is an irony on the part of Europe, having two big-giant groups viz. European union and Euro zone working to foster and strengthen the economies of European countries, and then witnessing such a serious crisis at home.


Why it is called Sovereign Debt Crisis??
Whenever government is in need of some money to finance its spending, it issues bonds in local currency or international currency. What is the difference between government bonds and sovereign bonds? If the bonds are in local currency, it is called government bonds. If the bonds are in international currency, it is called sovereign bonds. Sovereign bonds can be sold to other countries and foreign investors. It has to pay the interest money on specific period and principal amount at maturity. It has spread to Greece, Ireland, Portugal, Italy and Spain. Italy has the highest debt, while Portugal and Ireland are high on list as well. This crisis has its effects to whole of the Europe and world as well.


Greece - Most Affected
Greece is a developed economy with high Human Development Indicators. Tourism and shipping are the major industries of Greece.
Major reasons -
1. Tourism and shipping industries were highly affected due to the sub-prime crisis in US.
2. Over-expenditure on luxurious things.
3. High-level corruption in government.

Greece borrowed money by issuing bonds from European Central Bank, maturity period has arrived and Greece needs to repay the amount.
Greece government paid Goldman Sachs and other financial institutions to falsify their reports about country's high debt. Greece has the highest budget deficit of 13.6% of GDP or $ 532.9 Billion as of 2010.
After effects
S&P downgraded the Greece rating from BBB+ to BB+ in 2010.


Bailout and Austerity
The first bailout was approved by European Union and International Monetary Fund. They agreed to pay Euro 110 Billions, with EU paying Euro 80 Billion and IMF paying Euro 30 Billion. To continue receiving bailout, Greece has to follow some austerity measures and bring down its Budget deficit at 3% of GDP by the end of 2014, so it continues to remain the part of Euro-zone.
Austerity measures to be followed by Greece -
1. Wage cuts.
2. Freezing the pensions for 3 years.
3. Increase in sales tax to 10%.
4. Slashing of bonus.

It is a diktat on the people of Greece due to over-burdening of austerity measures.


Euro-Zone Crisis - A by-product of Sub-prime crisis
The economists suggest that the recent crisis in Europe was a ripple-effect of the crisis that hit the private financial institutions in US. To counter the global recession, European countries increased public spending, which began in 2008? Crisis in Europe hit majority of private financial institutions (e.g.- Lehman Brothers, American Insurance group) i.e. private banking institutions going bankrupt. While sovereign debt crisis in Europe led to the crashing of government financial institutions, i.e. countries itself going bankrupt.
 The world economic scenario is precarious. What we can do is wait and watch the show as it enters in to the next level. A lot of lessons are to learnt by the world economies including India as the show is proceeding in Europe.

Important Terms:
Budget Deficit - The amount by which some measures of the government revenues fell short of some measure of government spending.

Sub-prime Crisis - It was basically related to reckless lending to NINJA borrowers and mis-selling of toxic assets by reputed financial giants. It led to the crashing of private financial institutions in US.

Bailout - A loan given to a company or a country which faces financial turbulence or bankruptcy.

International Monetary Fund - The international organization that helps by providing loans to countries facing with balance of payments problem.

Tuesday, July 3, 2012

Zero Corruption Passport

The Indian Diaspora across the world is increasing at an all-time higher rate. People are going overseas to study, research, do business, work, tourism and many other purposes. Today, globalization has turned the world into a global village; distances are minimized with the help of technology. Therefore, there is a steep hike in no. of people applying for a fresh passport. Every foreign journey begins with a passports, one cannot do the above mentioned activities outside India, if he is not in a possession of a passport of Republic of India. Now starts the most revolutionizing step: getting a passport.  To go into insights of complexities involved in getting a passport, I arranged all my documents and applied for a fresh passport. After 3 weeks of my application, a police constable visited my place and followed his procedure for verification. After completing all his formalities, he demanded Rs.500 as his bribe and said it is his fees for doing verification and is disseminated from top-to-lower officials and warned me if I didn’t paid then, I’ll have to suffer and my file will not be cleared. I refused firmly and said that being a student, I’ll not pay a single penny and you do what you want to do with my file. After more than one month, my passport status showed that my police report was not clear, and then I wrote a mail to complaint authority of passport office, Bhopal. Within 1 week of my mail, my police report was clear and my passport was about to be dispatched. Finally I received my passport few days ago, to be surprised, even postman asked for some gift. But I had to refuse to him too, due to my policy of zero corruption. 

If we have all the tools available to fight against system, viz. RTI- Right to Information, in that case why there is a need to be corrupt. Hope I’m able to implement my policy of Zero Corruption, having failed many a time in my life, but still trying so that I’m able to reflect in my action all the time the same policy. It is my request to all the people who will be applying for a passport in near future, please adopt this policy and If there is any difficulty, I’m there to assist you in your bad times. Don’t cripple by seeing the system inefficient, rather use the infrastructure to convert your disability to strength.