A Crack in the Foundation

A Crack in the Foundation

                The Economy. The subject of textbooks, global summits, and endless conversations among…. Everybody. For the people of Greece, the trouble in the economy is more than a subject for discussion, but an issue of dire urgency. In a vote last week, not a single party was able to gather enough votes in order to gain control of Parliament and begin the country's movement toward a definitive action. However, the vast majority of votes were cast for parties representing anti-austerity measures.

                While there are a variety of possibilities on the table, the most serious is Greece’s recession from the European Union, and thereby their recession from the use of the Euro. The implications to recession are many, but there are a few that stand out.

Greek protest of Austerity measures

                The first is the drop in the value of the Euro. If Greece recedes, they will almost certainly refuse or default on their massive debts, immediately dropping the Euro’s value and seriously damaging the European banking system. While this would not be a fatal blow to the Euro, this would be a serious setback to the recovery plan of the entire Eurozone, as the value of exports dropped and the cost of exports rose.

                The second impact is the shift in European politics. No country has receded form the union before, and the mindset of the recession may have enormous implications for the future of other countries with serious debt problems. If this is seen as a viable option, then other countries may follow in their footsteps. This impact has far greater long term possibilities then even a sudden drop in the European banking system.

WE

Sources:  http://www.bbc.co.uk/news/world-europe-17982101

http://www.cnn.com/2012/05/14/world/europe/greece-politics/index.html

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/05/13/bloomberg_articlesM3YYVM0YHQ0X01-M3ZVL.DTL

The Euro Crisis

Oh, Europe. The buildings, the traditions … and the protests. It seems every few days there is another announcement of another round of protests hitting the streets, and the financial crisis seems to grow ever worse. But what is actually going on?

The financial drama is currently revolving around two separate figures, with a plethora of smaller players in the mix. Greece and Spain combined make up 10.6% of the EU’s GDP, a significant amount by any estimation. Both of these countries are in considerable distress on a variety of levels, with unemployment levels of 25% and 21%, respectively.

Protesters in Athens decry austerity measures

 The simplest explanation for the situation in Greece may be found in the credit and property busts of 2009, along with an economic plan often referred to as “austerity”, meaning cutting as many government programs and benefits as quickly as possible in order to reduce debt. While this may seem like a good idea in principle, the speed at which the programs were reduced seems to have crippled the economy.

Spain’s problems are similar, though beginning later were somewhat caused by other countries’ crises. It begins, however, with an enormous national debt and a steadily increasing deficit. At the advent of the Euro zone crisis, Spain anticipated difficulty due to a drop in its credit rating. However, the sudden drop in Greece and Portugal’s economy brought the crisis to a sudden head, aggravating an already difficult situation.

In Barcelona, citizens call for change

With the size of the Spanish economy what it is (around $1494 Bil) a bailout the likes of the Greek bailout would simply not be possible, with an EU rescue fund of 1.3 Tril to be used by the entire EU. So far, both the Greek and Spanish response have been severe cuts in government programs and services.

WE

Sources:  http://online.wsj.com/article/SB10001424052702304050304577377281097956366.html?mod=googlenews_wsj

http://www.irishtimes.com/newspaper/world/2012/0501/1224315406818.html

http://business.time.com/2012/05/01/why-we-should-worry-about-spains-economic-pain/

. http://en.wikipedia.org/wiki/Economy_of_the_European_Union

http://www.guardian.co.uk/business/2012/mar/09/greek-debt-crisis-timeline\

http://online.wsj.com/article/SB10001424052748704904604576335131728074142.html