The Effects of Greeks’ Financial Woes on Other Parts of Europe (Essay Sample)

EFFECTS OF GREEKS’ FINANCIAL WOES ON OTHER PARTS OF EUROPE Student’s Name Class Information Date The 2008-2009 global financial woes considerably strained Greece’s public finances with allegations about state-sanctioned falsification of financial data and this nation’s labor productivity contrarieties, further exacerbating the country's economic standing by augmenting its borrowing costs. By late 2009, Greece’s economy had begun contracting. Since Greece’s national income makes up a substantial percentile of Europe’s Gross Domestic Product (GDP), this country’s financial troubles irrefutably impacted other European-based economies substantially by lowering their creditworthiness, reducing investor confidence, engendering inflation, incentivizing rigid lending standards, and lowering financial assets’ costs. The advent of Greece’s financial misfortunes adversely impacted the euro. The euro’s value drastically disintegrated when Greece authorized a bailout package from the European Union (EU) in 2010. The euro’s value plummeted further after Greece’s debt status was downgraded to “junk status” at the Standard and Poor’s (S&P) global ratings, consequently jeopardizing Eurozone’s stability. Since currency devaluation is often commensurable with economic weakness, the Greek crisis-induced euro devaluation profoundly compromised the creditworthiness of other EU-member nations. Thus Greece’s momentary troubles considerably dampened investors’ confidence in these countries, thereby minimizing their capacity to secure investments, especially from opulent foreigners. Similarly, the epoch-making euro devaluation also aggravated inflation in EU-member countries by incentivizing increments in import prices and stimulating consumers’ demands for locally produced goods. Subsequently, most European nations inexorably started charging exorbitant interest rates to counteract the adverse upshots of inflation on their economies, consequently slowing their economic advancements exponentially.[Michael Arghyrou and John D. Tsoukalas, "The Greek Debt Crisis: Likely Causes, Mechanics and Outcomes." The World Economy 34, no. 2 (2011): 183.] [Mark Mink and Jakob De Haan, "Contagion during the Greek Sovereign Debt Crisis." Journal of International Money and Finance 34, (2013): 109.] [Hartmut Fischer, Elliot Y. Neaman, and Shalendra D. Sharma, "Why the Greek Meltdown Became a Euro-Zone Crisis." Journal of Diplomacy and International Relations 12, no. 2 (2011): 51.] Moreover, Greece's financial problems engendered prodigious losses to Eurozone-based bondholders. As of 2010, Greece had an outstanding foreign debt of approximately €184 billion.The likelihood of European banks losing their multibillion-euro bond holdings led most lenders to formulate vast arrays of contingency protocols like tightening credit standards to cushion their businesses against financial shocks. Such precautionary initiatives brought about a “knock-on” effect on Europe’s crucial economic ventures like commerce which reduced considerably. Furthermore, the prices of financial assets that are often deemed risky such as corporate bonds and equities, dropped sharply in other European nations. Consequently, Greece’s financial woes effectuated immense wealth losses for many enterprises and households within the Eurozone by ameliorating this economic bloc’s borrowing costs. Therefore, investments and consumer spending in Europe reduced tremendously.[Nikolaos Karagiannis and Alexander G. Kondeas, "The Greek Financial Crisis and a Developmental Path to Recovery: Lessons and Options." Real-World Economics Review 60, (2012): 64.] [Ansgar Belke, "Driven by the Markets? ECB Sovereign Bond Purchases and the Securities Markets Programme." Intereconomics 45, no. 6 (2010): 358.] [Ingo Fender, Bernd Hayo, and Matthias Neuenkirch, “Daily Pricing of Emerging Market Sovereign CDS before and...