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    Biggest Trouble Since WW2 for Europe

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    The German Chancellor Merkel stated that Europe is facing the biggest trouble since WW2. Why? What is the nature of this trouble? How did this trouble come about? In what ways will this trouble impact the US economy?

    Say you are a company in the Mississippi Delta, exporting goods and services to Europe. In what ways would your company be impacted?

    © BrainMass Inc. brainmass.com December 24, 2021, 10:51 pm ad1c9bdddf
    https://brainmass.com/economics/european-union/biggest-trouble-ww2-europe-513159

    SOLUTION This solution is FREE courtesy of BrainMass!

    Europe is undergoing a financial crisis, also known as the eurozone crisis. The crisis is a global one and the result of investor's fears over the large amount of private and public debt held by many industrialized countries. In itself, debt isn't a bad thing, especially since rich countries pay very little interest on their debt. However, when investors believe that a country might not be able to payback its debts, they increase the interest rate. Each country in the eurozone has significant control over its finances, its social services and its banking sector. Greece, for example, like most other countries, was running a deficit and had a large debt that was the result of high public salaries and a lot of social security programs. Iceland lent to foreigners in global markers, and when the recession hit, found itself with significant losses. The collapse of economic bubbles meant that banks, whether they were in the individual member country or not, were affected by large defaults. Spain faced a housing bubble. Even if a country had done everything right, if its banks were lending to countries facing public or private crashes, it could find itself in crisis itself. There are other potential reasons for the crisis, including trade balances, but as with everything, there is debate as to the true causes of the crisis. What is clear, however, is that it was driven by investor fears.

    The problem facing Europe is that the eurozone is a monetary union, they all use the euro, but there is no governmental union and the guidelines set up by the EU on eurozone members, are not always followed or strict enough. In essence, you have each country acting in different ways in terms of government expenditures and banking regulations that all share one currency. There is no enforcer. Now, when a country enters an economic crisis, it can devalue its currency to start-up the economy and increase exports, but if countries have a number of freedoms, they do not have the ability to manage their own monetary policy, that happens at the EU level and would affect all countries.

    The austerity measures and the recession in Europe has decreased the ability of Europeans to buy US products. That is U.S. exports have decreased which adds to the United States' trade deficit. If I am a country in the Mississipi Delta, I should expect the orders from Europe to decrease.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 10:51 pm ad1c9bdddf>
    https://brainmass.com/economics/european-union/biggest-trouble-ww2-europe-513159

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