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If you're going to link several governments to a single currency, the currency zone must A) restrict member state borrowing or B) constantly bail out poorer states when things turn sour. So far, the EU and the Euro-trading states have been unwilling to agree to either.
Despite widespread acknowledgement of the disaster that might result from the collapse of the Euro, there is still a chance that the system may fold or fracture. France and Germany are pushing the debtor states to reign in their spending and place caps on future borrowing, but they cannot do so without approval of the states themselves (and if they didn't want to curtail borrowing before, they may be less likely to now that they have to find money to service prior debts).
What happens if the Euro dissolves or merely shrinks? Think widespread bank defaults and capital evaporation on a greater scale than what we experienced in 2008. This is not what we in the US needs just as several leading indicators of domestic growth are turning positive. Whether Europe gets its act together will affect us all directly, from the cost of the products we buy to the likelihood that we get jobs upon graduation.
Such is the reality of the globalized, integrated market economy.
Well, I think EU countries already made their decision to restrict member state borrowing.
ReplyDeleteHowever, this is still a tough situation in the Euro zone.
As it was covered in class lecture, if EU countries fail to get back up, it will directly impact all of us.
In terms of integrated market economy, all countries are dependent one another.
Their exported products will increase and new investors are afraid and uncertain if they will be successful to do their business. International Banks and other international institutions will less likely to give them loans in the future.
Liz