There’s been a lot of articles and news stories about the financial crisis in Greece and how it is affecting the value of the Euro in relation to other currencies. There’s no doubt that the Euro is going through a bad time in these opening months of 2010 and the crisis in Greece is certainly one of the reasons why it’s going through such a hard time.
The problem is that Greece has a huge deficit, much higher than the one agreed upon between the nations of the European Union (16 of which make up the Eurozone). In fact, this deficit has become so huge that there is a genuine fear that Greece will not be able to pay back its loans and may default on them. Naturally, this casts a dark shadow over the Euro that a nation that’s using it is in such bad straits.
There is an expectation that the stronger Euro nations like Germany will rush to Greece’s aid and bail this ailing economy out. It seems that German leaders are ready for that, but public opinion is the stronger European nations is dead set against it. The population of Germany which is the Euro’s strongest economy is widely opposed to helping the Greeks because they believe that they need to bear responsibility for their fiscal mismanagement. There is certainly some truth to that.
There’s a dual problem: if you don’t help Greece it may default on its loans. If you do, you need to pump the market with a lot of Euros, cutting down its value. Naturally, neither is a good option but bad ones are all that remain.
What worries Germany is that Greece is not alone in its problems. Italy, Ireland, Portugal, and Spain are all showing signs of serious financial weakness. Spain has an unemployment rate that’s bordering on 20%. There is concern that if you bail Greece out, you may need to bail these countries out as well. This is something that frightens the entire market since this will require a major financial commitment that may cause the stronger Euro economies to suffer as well.
As Greece seems incapable of passing tough internal resolutions with violent protest and growing public outcry against the recent tightening measures of the Greek economy, the Euro is suffering from the uncertainty. Only time will tell how long this weakness will last. It certainly seems that the European economy is headed for some major challenges still.
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John Drummond works from home. He writes often on business, trading, and finances.