The financial debt crisis that started in Greece has spread like wildfire to countries like Spain, Portugal, Italy, and Ireland. With the future of the European economy becoming increasingly uncertain, it is important for traders and investors to take care of their assets. For this, you need to first know about how the debt crisis in Greece has affected the Euro and how big this issue is for the global economy.
The Greek economy is one of the top 30 largest economies in terms of gross domestic product (GDP) and purchasing power parity. Greece is also a member of the European Union, the OECD, the World Trade Organization, Black Sea Economic Cooperation Organization, and the Eurozone.
Greece itself has a considerably high standard of living, and all signs were good for the economy of this historic European country until the early weeks of 2010, when anxiety began to grow about Greece’s ability to pay back its excessive national debt. This immediately led to a sovereign debt crisis that soon plunged Greece into an economic pitfall and political turmoil.
Greek politicians are blaming each other and various other factors and conditions for this sovereign debt crisis, but the fact is that the symptoms were obvious long ago and became noticeable enough for one to get concerned. Unfortunately, the European Union did nothing despite these signs, and the Greek economy’s deficit began to increase exponentially. A mixture of uncontrollable spending by the Greek economy and blind buying of Eurobonds by investors soon resulted in the crisis that has now affected Ireland, Spain, Portugal, and Italy.
The request for the IMF bailout package by the Greek government has not made things any better either. During the end of the first quarter of the year 2010, the Greek national debt was in an extremely bad position as fears of debt default began to grow all over the world. As a result, stock markets all over the world dipped along with the Euro.
With the Greek economy in turmoil, the value of the Euro plummeted, and with the stock market struggling, confidence in the performance of European economies soon took a dip as well. Ireland had a deficit of around 14% of their GDP, Spain had 11%, and Portugal had close to 10%. Due to the circumstances, these three nations were at highest risk of contracting the Greek debt crisis epidemic.
The European Union has already implemented measures to bail out Greece and other affected European countries from their current situation. However, these measures have come at the price of austerity measures for the affected economies. For Greece, this has meant huge budget cuts, exponential increases in taxes and pensions, and structural changes in the public service sector. However, all this has still not helped the economy to come out of debt.
In short, the future of the European economy looks uncertain for now, and as investors, you need to be warned about the possible effects of this on the macro environment.