Impact of European Union crisis on Brazil

Presented By:

Wasim Akram

• A Brief History of the EU• Brazil• Relationship Between European union

and Brazil• Brazil-Trade• BRIC• Global Economic Crisis Effect On EU• Overall Impact on Brazil• Recovery plan

Agenda

A BRIEF HISTORY OF THE EU

• 1952:Treaty of ParisEuropean Coal and Steel Community (ECSC)European industry & improve commerce, post WWII.Started with 6 countries expanded over time to 27 countries.Fore-runner of the EEC, EC, and EU• Phases of growth

– European Economic Community (EEC) (1958)

– European Communities (EC) (1967)– European Union (EU) (after 1992)

GROWTH OF THE EU

GROWTH OF THE EU

Admission of

Romania and

Bulgaria

2007

Croatia and Macedonia are new candidates

BRAZIL

Named after Brasilwood Tree

Geography of Brazil

• Brazil is the worlds fifth largest country in both geography, and population.

*Population Density

• It occupies roughly half of South America.

• Brazil is home to two of the world’s fifteen largest cities of Sao Paulo and Rio de Janeiro, the Capital however is Brasilia.

• Brazil covers a total land area of 3,287,357 sq. mi.

Geography of Brazil

• The Amazon River is located in Brazil which is the largest river in Brazil as well as one of the longest in the world.

• Amazon Jungle World’s Largest Jungle

• Covers upto 50% of Brazil

Geography of Brazil

Brazil-Facts and Figures

Total Population

194,400,000 (est.)

FLAG

Local Currency Real (BRL)

Literacy 86.4%

Dilma Rousseff

President

GDP $2.493 trillion

They gained their independence on 7 September, 1822

Most of them have mixed backgrounds.

Portuguese brought African slaves.

Intermarry and share culture

People of

Brazil

CULTURE

• The core culture of Brazil came from the Portuguese culture because of the strong ties to the Portuguese empire.

• The Portuguese introduced their language as well as their Catholic religion to the Brazilians.

Brazil is very crazy for sports, especially Soccer.

Each big cities of Brazil has a football (soccer) stadium

Well-known for agricultural products

Largest Coffee producer in the

world

World leader in

the production of livestock.

Mining are major industries too

Mine lots of minerals

Major producer of steel

What is brazil doing to be so dynamic?

• Infrastructure • Reducing poverty and inequality• Increased openness to the world• Institutional reform

What is holding Brazil back ?• Policy failures• Failures in the regulatory and legal systems• Inequality• External factors

Relationship between Brazil and European union

• Brazil and the European union established their relation in 1960. Brazil entered in a strategic partnership with the European Union.

• The relationship is governed by the Framework Cooperation Agreement(1992),the EU-MERCOSUR framework cooperation Agreement(1995) and the Agreement for Scientific and technological Cooperation(2004).

Summits of EU -Brazil

1st EU-Brazil summit on 4th July 2007 in Lisbon.

They established an energy partnership.

2nd summit on 22nd December 08 in Rio de Janerio.

They discussed global issues, regional situations and the strengthening of EU-Brazil relations .

3rd summit on 6th October 09 in Stockholm. Implementation of EU-Brazil joint action Plan adopted at the 2nd summit.

4th summit on 14 July 2010 in Brasília .

Leaders view point were discussed on implementation of plan which were positive.

5th summit on 4 October 2011 in Brussels .

Concentrated on strong united nations to tackle global challenges .

On June 30 2009, the 1st EU-Brazil Civil society meeting .

They discuss the social consequences of the Financial crisis as well as energy resources .

Trade in goods• The EU is Brazil’s leading trade partner and represents

23.4% of Brazil’s total trade.• Brazil's exports to the EU are mainly primary products

(agricultural).• The EU's exports to Brazil are mainly manufactured

machinery, transport equipment and chemicals.• At the detailed level, the main EU exports

to Brazil were motor vehicles & parts, medicine and aircraft & parts, while the main imports were iron ore, coffee, oilcake, soya beans, wood pulp and crude oil.

SOURCE:http://www.wto.org/english/tratop_e/markacc_e/namachairtxt_dec08_e.pdf

Growth in EU-Brazil Trade• The first half of 2011 showed a continued growth

in EU  trade with Brazil. • Exports rose from 14.8 bn in the first six month of

2010 to 16.9 bn in the first half of 2011, and imports from 14.9 bn to 18.5 bn.

• As a result, the EU27 deficit in trade of goods with Brazil increased from 0.1 bn in the first half of 2010 to 1.6 bn in the same period of 2011. 

• Brazil accounted for just over 2% of the EU's external trade in goods, and was the EU's ninth most important trading partner in the first six months of 2011.

Source:http://europa.eu/rapid/pressReleasesAction.do?reference=STAT/11/141&format=HTML&aged=0&language=EN&guiLanguage=en

EU trade with main partners

Brazil trade with main partners

SOURCE:http://www.wto.org/english/tratop_e/markacc_e/namachairtxt_dec08_e.pdf

GLOBAL ECONOMIC CRISIS EFFECT ON EU

• Crisis starts in us sep.’08, but spreads to Europe, where in many countries experienced similar problems consisting of housing bubble, excess debt of consumers and Governments.

• Crisis most severe in Greece, Portugal (fiscal deficits) Ireland, Spain (housing bubbles, banking system)

How did Brazil handle the global financial Crisis so well?

• Brazil banks were still less exposed to the U.S. mortgage-backed securities market where the crisis started.

• Brazil banking sector is benefitted from having one central regulator-The Central Bank.

• Low unemployment rate• Increased trade ties with other

developing and emerging economics

BRICBRIC is a grouping acronym that refers to the countries of

Brazil , Russia ,India and China.It is typically referred to as “the BRICSs” or “the BRIC

countries “or “the BRIC Economies” or the “Big Four”.The countries of Brazil, Russia, India and China are four of

the biggest emerging economies today. In 2001, Goldman Sachs had predicted that , these countries

would become bigger than the six most-industrialized nations in dollar terms by the year 2050.

Now, things have changed to such an extent, that the prediction has been moved closer to year 2025.

What is so special about “BRIC”?

“BRICS” accounts for:

40% of the worlds population

25% of its total geographic area.

40% of global GDP.

The ‘B’ in BRIC:Unlocking Brazils growth potential

• One of the fastest growing economies in the last century

• But over-reliance on agricultural commodity exports resulted in a development marked by boom and bust

• Focus on equitable development has resulted in significant poverty reduction

• Brazilian economy becoming less dependent on exports

• A global leader in renewable fuels.

What will happen to emerging economies such as Brazil? If crisis does not become worse?

Source: IMF World Economic Outlook (June 2011) Produced by: Ministry of Finance

Sound fiscal situation when compared to other countries Budget balance forecast, in % GDP

Source: The EconomistProduced by: Ministry of Finance

* The Economist (September 17th, 2011 edition) ** For Brazil: Ministry of Finance forecast

How does it affect Brazil?

• Stock market volatility.• Financial institutions exposed to the debt will write

it down, affecting their bottom line.• Borrowing will get costlier as interest rate will

remain high.• As a result, spending will be less leading to a

longer recession.• Weak consumption and spending in Europe spells

trouble for the rest of the world economy, that is struggling to get out of the downturn.

Impact on Brazil

• The Brazilian debate on the future of Europe is still superficial, but has a particular concern for the impact the crisis will have on its growth rate.

• Brazilian companies, already operating in the continent before the crisis, have been revaluating whether it would make sense for them to continue operations.

The European crisis has had an impact on Brazil in three different areas:• The spill-over effect from Europe´s trade reduction

with its current number one trading partner, China, now Brazil´s main trading partner, too;

• The decrease in exports to Europe due to protectionist measures; and

• An overall impact of the European crisis in worldwide growth, which has affected the Brazilian GDP, reducing the expected growth from 3.5 percent to 2.5 percent in 2012.4

Impact on Brazil

• According to the World Trade Organisation (WTO),Brazilian exports were reduced by almost 17 percent in the last quarter of 2011 and the first quarter of 2012, as a result of the European crisis.

Impact on Brazil

• When it comes to investments, there has been a dual scenario. The expansion plans of Brazilian companies that were already operating in Europe before the crisis have been adjusted.

Impact on Brazil

More confidence in Brazil 5-year CDS (Credit Default Swap), in basis points

Source: Moody’s Produced by: Ministry of Finance * Updated on September 21st, 2011.

What’s being done to avoid the crisis?

• Stronger economies are pushing for stringent spending control guidelines, where a country’s spending will be directly proportional to its economic strength.

• Several options are being discussed, such as, issuance of Euro Bonds, backed by the entire EU.

• Restructuring of debt, with strict austerity measures placed on countries at risk of default.

• Troubled eurozone countries are pledging to cut back government spending to show they can be trusted.

Recovery Plan

• Brazilian government clearly signals its firm belief that oil should serve as a tool to increase its international weight and strengthen ties with key partners, particularly China, USA and Europe.

• The Brazilian experience has proven that crisis have invariably had a short-term negative impact with positive long run results.

Recovery Plan• The current crisis should be a new

moment for Brazil to rethink its positioning strategy in the global scene.

• A common agenda for Brazil and Europe for the near future should be developed including

1. Education and immigration2. Trade3. Collective security

Recovery Plan

• For every $2 invested in Brazil from Europe, there is $1.5 invested back by Brazil.

• The European crisis has represented a unique opportunity for brazilian capitalism to be more competitive internationally.

• The new Brazil Is entirely dependent on Brazil for growth

Conclusion

• Crisis come and go, so do Governments. Policies and institutions should be, however, long lasting. Their strength is essential for longevity. Brazil should look to Europe as a vital partner in building the new world order, with increasing influence over emerging countries, who should take over responsibilities in the international arena.

Group suggestions for Brazil

FISCAL CONSOLIDATION • Achieve high PRIMARY RESULTS in 2011, 2012 and

afterwards • Control new CURRENT EXPENDITURES • Create fiscal space to continue expanding INVESTMENTS

and TAX EXEMPTIONS • Create conditions to reduce INTEREST RATES • NEW MIX OF FISCAL-MONETARY POLICIES

TRADE DEFENSE: Federal Revenue and MDIC measures

CURRENCY WAR: • Reserves • Taxation • Derivatives • Incentives to innovation and local content

THANK YOU!!!