International Fears Arise From Spain and Greece Debt Crisis
European stocks have been struggling as Spain does not seem close to requesting a bailout soon. Spain’s debt and interest carrying costs are increasing at a rate much faster than the GDP, and it seems as though this trend will not slow down. Greece is in the same situation. Greece has incurred a lot of debt and is struggling to pay it back. Due to this, the country is in the process of securing a bailout. Both countries’ unemployment rates have risen above twenty percent, and the Eurozone in general has a combined unemployment rate of 11.4%. Talks that France is going to be next have many people worried and these worries can only lead to more problems.
Europe has been struggling for quite some time now, due to a few major factors. First of all, Germany is where all of the money is. The money is not properly allocated throughout the Eurozone and as a result countries are beginning to squander and mooch off of Germany due to their increasing debts. Italy has let bad governing abuse its useful natural resources, while Spain’s corrupt banking system has caused the debt to accumulate much faster and higher than the GDP, making it clear that a bailout will be necessary. Finally, Greece’s debt is so high and the unemployment rate has spiked, revealing that a bailout is the only way to return Greece to its original state.
The state of the Euro is in danger because the people of Greece could move their money somewhere safer, causing the banking system to quickly fail. Once the Greek system fails, the worry is that it could spread to some of the more influential countries such as Spain or Italy which would be detrimental to the European finances. There would be chaos and the Euro would likely be abandoned, but what would really happen? If the Euro is abandoned, there are positives and negatives that must be taken into consideration. There would be economic struggles right away, as trade would be shut down along with the failure of lending. Companies would fail, and all of Europe would feel its effects. However, the country could refuse to pay its debt. Tourism in these countries would increase because of reduced prices for housing and food.
For the United States, the crisis is irrelevant in the trade industry, as only three percent of the U.S. economy is European exports. However, the financial industry is a different story. When the fear of the European finances went global in 2008, many international markets froze, and the U.S. went into a recession. If the European banks begin to fail, it would lead to another global financial disaster, with most likely the U.S. entering another recession. But in the end no one really knows what is going to happen to the Euro and the European Union. If the right approaches are taken, and the Eurozone cooperates to make these decisions as a whole, there is still hope for a rebound. What do you think are the steps that need to be taken in Europe? Should countries begin to think about new currencies?