I know that Greece’s current economic situation is not news anymore. But in today’s economical context on a worldwide scale, it’s important to understand how the most affected and weakest link will destabilize little by little the entire global economy. Local economy is fully dependent on global economy. All the countries are intertwined from an economic point of view, like the links in a chain and the chain is only as strong as its weakest kink; if the weakest link goes, the chain breaks, failing to fulfill its purpose. You might be thinking that Greece is situated in the other side of the globe, and its current situation shouldn’t take much of a toll on the US. But you’d be wrong. The weakest link broke the chain that the US is part of as well.
Cause and effect
Greece joined the EU back in 2001, and its problems began back then, due to series of poor economic decisions. The recession that happened back in 2008 was only the straw that broke the camel’s back. When it gained the status of full-time member of the EU, the Greeks also adopted the Euro as their national currency, denouncing the Drachma. The government’s first impulse was to borrow immense sums of money, which began to take their toll on the Greek economic infrastructure rather fast. They’re national debt became unbearable way before the global recession and the government failed to invest the money wisely, boosting wages and pensions instead.Tax evasion also contributed to the financial destabilization of the country, as illicit private businesses prevented government tax revenues from balancing the exorbitant wages and pensions. All the poor judgment resulted in an increase of national debt which is about 170% larger in 2016 than the actual GDP. But the real turmoil began when the international rating agencies downgraded the country’s credit rating. The move forced the hands of the government to pay substantial premium to sustain investment, which in turn would encourage investors; but investors were reluctant to develop businesses further in Greece because of the rising financial instability and immense national debt.
And it’s from here that things started going downhill. All the financial went down one by one, as the governmental deficit went down to about 15.6% in no time at all, exceeding the EU threshold of 3%. The domino effect began, tearing down Greek infrastructure little by little as household income fell beyond 35% with business opportunities. Numbers destabilized as well, as income dropped and prices would not. In order to bail out the Greek government, the IMF (International Monetary Fund) and ECB (European Central Bank) gave bailout funds of $320 billion, but to no effect.
How the Greeks poor financial judgment affects the US
The economic collapse triggered by the Greeks affected neighboring regions most, but not only, as the US was felt the economic tsunami as well.If Greece collapses completely or exit the EU it would be devastating for us as well,considering the US – EU economic tie is the strongest in the world, with exports of about $270 billion a year. Local financial destabilization in the EU region affected greatly economic exchanges; the ever-increasing interest rates in the EU alongside with an appreciation of the USD will eventually make theexports to pricy for the affected EU countries. If the US will be forced to give up on its most profitable exports, the local economy will find itself on the brink of extinction. The stock market will be destabilized as well. Losing so much export area is terrifying for the US economy, who has enough problems as it is. Our national debt is already reaching an unthinkable amount and the socioeconomic stage is facing unprecedented levels of poverty and unemployment.
Whether we like it or not, we’re not completely separate from the rest of the world; that’s just how things are and we need to accept it. Financial stability in the US is relying fully on the wellbeing of others, as we’re only one of the many wheels that make up the complex mechanism of global economics. Things haven’t been going well lately, and the worldwide recession in 2008 seems to have been more debilitating than it was originally expected. From the looks of things, economic stability is nowhere in sight and things are going from bad to worse. Whatever the future brings, it’s not going to be good. Stay alert, keep yourself informed and prepare for the worst.
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