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The long run effect of the Eurozone crisis on Germany and Greece


The Eurozone crisis


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Europe financial crisis, which is mostly referred to as the euro crisis, is an economic term that depicts the economic status of most European countries. The Eurozone crisis stated in the year 2009 when most countries in Europe exceeded their spending limits and embarked on borrowing mostly from the European Central Bank (ECB) and the International Monetary Fund (IMF). The most countries affected by the Europe crisis were members of the European Union such as France, Germany, Italy, Greece and many others. The crisis followed after the introduction of the Euro currency to be used as a common trading currency among members of the European Union that excluded countries like the Great Britain. Thus, as a result of over spending, the rate of inflation in these countries went up. In this case, the crisis was to be reverted back to save the economy of Europe and the world because a crisis in Europe would also affect other continents.
The euro crisis was instigated by reducing the bank lending rate meant to steer economic growth, but most of the countries could not repay these loans. The countries defaulted to repay back the loans. Thus, the European Central Bank was left to struggle to keep the economy of Europe in the worst case scenario since the 1998 when the global crisis emerged (Arestis 2012). The existence of the European Union was threatened by this crisis as the banking lending rates became very low. This could stall economic growth thereby instigating loss of jobs in Europe when companies are forced to limit their spending just to keep afloat. Stringent measures had to be thought out quickly as it required the intervention of economic giants like the US and Germany. This was meant to help avert the crisis that would lead to another global financial crisis. Countries like Greece were on the verge of defaulting to repay back some of the loans lend out by the European Central Bank and the International Monetary Fund and thus the intervention of Germany to help in stimulating the economy of Greece to help it repay the loan was crucial (OECD Economic Surveys 2011).
The Eurozone Crisis
German is known to have a stable economy where any decline in the lending rates could affect the economy of the country. The government of Germany has set good and solid financial policies that shield the country’s economy from major global financial crisis. However, the Eurozone crisis happened right in the middle of the country’s major trade partners and thus the value of export in the country could be reduced. Thus, to the emergence of a single currency to be used by members of the European Union the effect of the Eurozone crisis would affect adversely on the members of this union. The Eurozone crisis would spell out a weak euro currency, which would have long term effect on the economy of Europe. The economy would reverse due to closure of businesses and companies as they try to cut down on the spending through employee lay off and reduced sale value (Great Britain 2012). A strong currency would spell out economic growth where countries would experience an economic boom. Thus, the countries would increase the level of their export as result the government would collect high revenue. In the short run, the bailing out of most of the countries would spelt out a relieve to the economy of Europe where the central bank would be required to print more money to help in repaying some of these loans. However, in the long run, the inflation in Europe would sky rocket registering double digits. This will finally affect the global economy leading to adverse effects on the running of major governments and businesses. The economy of Greece was on the verge of collapse, and as a result of the Eurozone crisis, the country’s economy was in huge trouble. This would affect other countries in Europe (Petrakis 2011). Thus, proper policies from countries like Italy and Spain were to be implemented to help avert the situation in Greece. Greece would have resulted to more borrowing and accumulate the international debt further and thus slow down their economic growth or even result to printing of money, and this would raise the rate of inflation in the country (Siebert 2005).
The Eurozone crisis would spell out a sovereign financial crisis to major economies in Europe. Here, they would lose investors, and the euro currency would fall in value affecting most export from Europe. This will also increase the government’s spending as they try to avert the crisis. The value of the euro would fall amid fears from major world currencies like the US dollar and the sterling pound (Lynn 2011). Thus, the effect of the Eurozone crisis would not only affect Greece and Germany, but other countries in the world would also be affected negatively. The economy of most European countries sustains many countries, especially in Africa and Asia. These are countries that rely a lot on the trading of the euro and the financial capability of the European Central Bank to help in money lending and foreign exchange rates to stabilize. The effects of the Eurozone crisis are more profound on the running of the economy of countries like German and Greece. The value of the euro was mostly set out to match the value of the Deutschmark, which was the most stable currency in Europe. Thus, the economy of Germany mostly depends on the value of the euro (Raussello 2012).
The German central bank also referred to as the Bundesbank acted as preservation of the euro. The bank sought to clear the Eurozone crisis through the economic stimulus program. This was designed to help most European countries to steer to better economic growth and preserve the value of the euro. The euro is highly recognized as a strong trading currency due to its capability and power to trade in different countries around Europe. Thus, any fall in the global market would adversely affect the euro plus other major currencies in the world (Rogers 2012). The demand of the euro would reduce if its value declined and this would affect the international trade in Europe that relies mostly on export of industrial goods and services. Third party governments had to intervene and help in financing these loans. This was due to the effect that some governments could not repay or finance some of the debt they owed to major world financial institution. Some of the countries that were unable to finance their debts include Greece. In the case of Greece, there was intervention from countries likes German (Lipschitz & Mcdonald 1990). The government of German was willing to bail out some of these governments. This was to be taken as a policy to address the crisis, which would have an adverse effect on the economy of many European countries in the long run. The slow economy growth in many European countries would even shake of stable economies like German and Spain. Thus, as a caution to shield their economy from the crisis, the government of these countries resolved to help avert the crisis effects. This was especially the case on other countries like Greece, which were not in a position to finance its foreign debt (Fiorentini & Montani 2012).
The Eurozone crisis has had adverse effects on the economy of Germany and Greece and not to mention the effect it has had on the economy of Europe and the world. The loss of investors as a result of weak euro will affect the GDP of most European countries. In this case, a reduced investment in the economy would result to low goods and service production. The countries would have very little goods and services to export. Therefore, these countries would earn less revenue as compared to other economies in the world. The effect of the Eurozone crisis on Greece would be adverse and considerably profound due to its inability to finance some of its foreign debts. In this case, the government would be forced to borrow significantly to repay a part of this loan. The financial position of the country would be on the decline as many jobs would be lost as a result of the financial meltdown. The government would resort to either more money printing or borrowing. In turn, this would increase the money supply within the economy thus raising the level of inflation. Inflation in the country would spell a low bargaining power of the goods and services in the country. International trade would be adversely affected as the countries goods would fetch low prices on the market due to low currency value in the country (Hardach 1980). The country’s import would cost the country more money as compared to a situation with a strong currency. The country would be spending more than its capacity on the same goods and services. The level of unemployment would increase as most companies would be involved in labor restructuring as a result of cutting cost in the country. The government should give relief to the laid off workers when the level of unemployment increases. In this case, the revenue collected from the tax would also decline resulting in low economic growth (Farnsworth & Irving 2011).
The long run effect of the Eurozone crisis on the economy of German would be a reduced economic growth. In this case, considerable funds would be directed to countries like Greece who have defaulted in paying their foreign debt. The country’s government would result to issuing tax relief to some of its companies that may be affected by the low value of the euro. The low value of the euro would affect local industries that produce goods and services for export where their sales would decline due to low currency value and would thus result to laying off some of the workers as a cost cutting mechanism so as to remain in business (Habermas & Cronin 2012). The country’s bank lending rate would lower. This will adversely affect the economic growth in the long run as the government tries to revive some of the companies to enhance borrowing to stay in business. The government would result to privatization of some of its assets as it tries to offset some of the deficits it may incur in the process. Privatization of government assets would seem to be the only means of trying to avert the economic crisis. This is as opposed to   money printing, which would increase the level of inflation and thus worsen the situation. The country had to budget for over 110 billion euros to bail out Greece and other countries that had a problem in meeting up the loan repayment. Such a financial budget can affect both the bailing out the country, and the beneficiary as more stringent measures could be issued to avert the whole situation (Arestis & Sawyer 2012).
The following were some of the solution to the Eurozone crisis where major economies in Europe like German, Spain and Italy resolved to help countries like Greece that had problems in repaying their foreign debts in time. The country had to privatize most of its assets as means of payment for the bail out. Privatization required the country to sell some of its government assets as a means to gather funds that would be used to disburse some of the amount loaned. It would also help restore the country’s economy, which was on the verge of collapse. This will also stimulate economic growth ion the next few years. The country had to implement a complete restructuring of its financial reforms so as to stimulate competitiveness and economic growth. The reforms would help in steering the economy to great heights and project government initiated investment into the economy. The economy could be improved by issuing government bonds to raise more funds and service the loan without having much effect on the value of the euro. The bail out would help Greece to reduce a part of its foreign debt by over a half. This would help the country to increase its GDP through increased investment and strengthening of the country’s economic growth rate to a great extent (Baldwin et al 2010).
The euro crisis is said to have emanated from countries in Europe. These are countries that had defaulted in paying their public debt. This led to a fall in value of the euro currency. Countries like German, which have had strong and stable economic growth coupled with strong financial capability, resolved to bail out some of these countries that had un-serviced foreign debt accumulating to millions of dollars. These defaulting countries included Greece which had a foreign debt amounting to more than 110 billion euros. The country had suffered as a result of these un-serviced loans where the economy of the country was on the decline and already experiencing the full effects of an economic meltdown. The economy had little or no investment and thus the value of the euro was declining. This was due to low GDP as a result of low export value and high import value. Most industries in the country were on the verge of collapse and thus required an economic stimulus package to help revive the economy back again. The long term effects of the crisis are still being experienced in these countries as they try to revive the value of the euro for competitive trading.

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