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By: Jackson Holcomb

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Thursday, 3-Sep-1981 03:31 Email | Share | | Bookmark
Eurozone Debt Crisis: The Domino Effect

In '08 the economic meltdown devastated many countries in the European Union, Although the crisis wasn't spreading rapidly it still shaped the Euro currency which was a really bad problem not only for the citizens but for the Central banks too. Governments tumbled some countries had no choice but to have another recession, furthermore it also displayed very deep rifts between various regions.

So what exactly is the Eurozone debt crisis? Why should you be worried? You might even ask, "How will this affect me?"

The Eurozone debt crisis isn't just affecting the European countries, come to think of it, this can also have a big influence on the countries located in South East Asia. Now that we are all aware that this problem can affect not only Europe's economic stability it's probably time to talk about other issues which might need resolution as this crisis branches out into more issues that needs to be fixed. For example, apart from the debt crisis Europe also has its hands full with a banking crisis. One more thing, the United States' biggest trading partner is the European Union and this is why Americans should familiarize themselves with the matter. The United States needs to help in this issue because once the greek financial crisis situation reaches its peak it will affect the economic recovery of the US. This will lead to a domino effect that can cause political implications like threatening national security. Other European nations will more likely cut down their financial support on defense and this will affect Nato's credibility and power.

The long debt crisis will result to the dominant global currency, the dollar, to stay on its summit, it may be a good thing for US but this means other currency will be just second to it. The American Dollar will more likely stay on top if the confidence of investors on Europe declines. And to add more insult to the injury, various Big banks all over the world have decreased their holdings of Euro currency and that's another bad news for the European Union.

Italy and Spain are solvent but they are illiquid, in laymen's term they running short on funds and they will have a harder time to pay off their sovereign debt. Although this may be good news for other countries this will disturb the balance and have a tremendous impact on the global financial system.
Investor trust in Europe may be restored if the debts and deficit levels are minimized, this will lower the borrowing costs of the government. While it's a long shot, it's still possible that this will help in solving the Eurozone debt crisis. But remember that investors check a country's growth prospect before they invest on it. It's already given that no one would waste their hard earned cash on something with no value, right? If a country cannot generate income then what's the point of investing in it?

Last Thursday, September 6, Euro stocks soared up. This was definitely a good sign for the Euro because it had hit a two month high, zooming past the dollar. It's great news, however this will not directly fix the problem. Many European banks are almost bankrupt and this should also be fixed. It's better to find a permanent solution to this debt crisis while it is still new, if this continues even for 2 more years the European Union will certainly have multiple problems, problems which will be impossible to solve.


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