Effects of Euro Zone Crisis on US
The euro crisis isn’t just a predicament facing the Euro Zone but rather, one that affects the global economy. The crisis hit in 2008 leaving behind an unprecedented history and affecting the global economy disrupting world order. No one knows for certain the duration the crisis will last or what kind of end result impact it will have on the global economy.
Spain, Portugal, Italy, Greece and Ireland are among the countries that have the largest GDP debt ratios and huge unsustainable fiscal deficits. The recent Standard & Poor’s cut rating by the United States cut the credit ratings of 9 Euro zone countries.
Austria and France got stripped of their Triple A status that was coveted by many countries and it also downgraded the rescue fund (EESF) one notch to AA+ from an A. This downgrade was an echo of the views held by Germany, the only euro zone major country to have retained its top position. In accordance to Standard & Poor’s, such downgrade was inevitable taking into account the cuts in creditworthiness of Austria and France two guarantors of EFSF.
The EFSF was set up in May 2010 by seventeen governments sharing the same currency in order to make provision of emergency loans to some of the countries that were needy. It boasts of having an effective lending capacity of five hundred billion Euros which is based on eighty billion Euros and a callable capital that amounts to six hundred and twenty billion Euros.
Europe is also a key trade partner with North America and China as such the crisis also has a major impact on the economies of these two countries. Apart from the slowdown, governments can also decide to reduce spending and cut their budgets which can lead to unemployment. Such factors will also serve to bring the euro into an even much more deep recession.
The default by Greece had been in the offing since the crisis struck after talks between creditors and the Greeks down. Greece was supposed to come into agreement with private sectors so it could accept its voluntary losses on Greek bond holdings.
The European countries have already embarked on policies that will help with deficit cutting and which might damage the prospects by drawing out the demand of the economy. According to OPEC (Organization of Petroleum Exporting Countries) the worsening state of the euro zone crisis will affect the demand for oil. The crisis is also expected to impact consumption of oil from emerging economies driving increased global usage of fuel.
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