Impact of Euro Crisis on Global Economy

Many nations, including the developed and developing ones are worried about the impact of euro crisis on global economy. Considering that many economies are still trying to recover from the recession, the European debt crisis has not made things easier. Although Britain seems to be the one on the spotlight, the crisis has far-reaching consequences on the global economy. This is because the Eurozone is a market for a wide range of countries like the US, China, Japan, Russia, India among others. This essay will look at the impact of Euro crisis on global economy.

Overview of the Impact of Euro Crisis on Global Economy

Despite intensive efforts by the IMF and other countries like China, the economies of several countries in the Eurozone have been doing badly. In fact, quite a number are even unable to pay interests on their bonds anymore, dragging the economies to their knees. In countries like Greece, Spain, Ireland, Portugal, the cost of borrowing has gone up due to the uncertainty of their financial health.

Apart from the high debts accrued by many Eurozone countries, there are also doubts about economic progress and the ability of those nations to finance the loans. Since around 2009, many countries including Greece, Spain, and Portugal among others have been faced with high deficit ratios, which have negatively affected their GDPs.

The Key Areas of the Euro Crisis

There are various reasons that have been given for the crisis facing Eurozone countries. The following are some of the main areas of aspects of the problem.

• Indebtedness of many Eurozone countries, hindering them from servicing their loans as required
• Banking systems; Banks in European nations with stronger economies like Germany and France are withholding vast bonds at the expense of weaker economies like Greece. Besides, some banks in those poorly performing countries in the Eurozone have bad books mainly impacted by their collapsing real market sectors.
• Stagnant European economy.

The impact of Euro crisis on global economy analyzes the various effects of the economic hardships faced by nations in the Eurozone on world economies. However, it should be noted that the crisis is not only economic. Due to the increasing worries about the economic uncertainty, political tensions too began mounting across the countries at the center of the crisis.

The impact of the crisis facing Eurozone countries on the global economy is felt across a wider platform or on various sectors. For instance, quite a number of banks across the world have invested in the debts of Eurozone nations. Besides, these financial institutions also hold vast amounts of Euros. This implies if the crisis degenerates, the government debt and currencies held by these banks would lose value, thereby undermining their financial strengths. This would create a situation like the recession of 2007/2008, characterized by a collapse in the global banking system.

Due to the devaluation of currencies held by the global financial institutions, many banks will start introducing measures like job and operations cuts. In fact, some will also shy away from further investments in order to avoid collapse. This is a situation that is highly likely if the Eurozone crisis continues to drag on.

The Eurozone is a vast consumer market, and the Euro remain a significant currency used by millions across the world. Today, it is estimated that about 322 million Europeans use the Euro, a currency for 17 countries. This population not only uses the Euro to buy goods and services from the European market but overseas as well. Without the finances, imports will be substantially weakened. Besides, there are also about 150 million people across the African continent whose countries rely heavily on the value of the Euro. This implies the devaluation of the Euro will also be impacted on the respective currencies of those nations.

Conclusion

The Eurozone is a major player in the global economy, considering that some of its member states like Germany and France are listed among those with the largest nominal GDP. The greatest impact of the Euro crisis on global economy would be a total shutdown of business, a situation which every nation should never let happen.

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References

http://www.bankrate.com/finance/economics/european-debt-crisis-impact-on-us-1.aspx

http://www.dummies.com/how-to/content/the-euro-debt-crisis-and-its-impact-on-the-world.html

http://www.sundaytimes.lk/111211/BusinessTimes/bt07.html