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Introduction
The economic crisis in Greece has not only affected the country but the whole European Union region and the world. Greece is one of the smallest countries in the European, but this has not made its effect on the European Union any less. The cause of the economic crisis is due to the continuous extensive spending by the government resulting to rise of the nations debt.
This has left it greatly exposed to a financial crisis as a result of reckless borrowing and great expenditure levels. In 2008, Greeces percentage debt to its Gross Domestic Product was 110.7% and this increased to 142.8% by the year 2010. The nations economy is thus in danger compared to the normal 85.3% debt in the other Euro zones.
It is evident that the countrys financial issue is not only of interest to government heads but also private individuals and corporations in other nations. Every nation in the EU region is now affected by the financial crisis in Greece because they have to spend on bailing it out.
As a result, the financial crisis has transpired into the worlds economy. Research has shown that the effect the financial crises has had varies in different nations. This paper will discuss how the economic crisis in Greece is affecting the rest of the world.
Discussion
Greece struggle with a substantial debt load persists to affect the rest of the world. As the financial crisis in this country persists, it is experiencing a 16.3% rise in joblessness and a dramatic decrease in revenues (Madslien). Other effects of this financial crisis to the Greeks include the lack of pay increments, higher taxes, increased fuel prices, and increased retirement age.
The financial crisis in Greece has made many investors apprehensive about buying the government bonds being issued. As a result, interest charges are increasing as governments are forced to pay a larger risk premium. For instance, it is anticipated that due to this financial crisis, the Central bank in Europe will increase its interest rates up to 1.5% (Madslien).
European citizens are facing the problem of increased age retirement because of the financial crisis. Tax costs in the European region have been increased in an attempt to cover the financial cost of the crisis.
As a EU country Greece expects the rest of the EU members to bail it out and this has resulted in an increase in cost of living in these countries. The countries have been forced to increase their taxes and this has weighed on badly on their citizens.
Another effect the economic crisis in Greece to the rest of the world has been wealth reduction. In this regard, the net income of many people has greatly reduced as they are forced to pay large amounts in taxes. The fact that retirement age has increased has led to low salaries due to shrinking pensions.
Pension funds invest the pensioners money in stock markets, and since this has been affected by the crisis, the wealth of the pensioner is greatly reduced. Pension funds in the private sector are also having difficulties in making up for deficits in their income plans due to the diminishing asset values. The issue of wealth reduction has been heavily realized in nations such as Ireland, Portugal and Spain.
This crisis has also led to a slow economic recovery among many nations. This is due to lack of anticipations of any marked return in business ventures. For instance, due to the crisis, the economic development in the Euro zone has slowed by 0.3% to 0.4%. This has prolonged the suffering of the jobless since job creation has become slower compared to the times when this crisis was absent.
By now, the Euro zone redundancy rate is about 10% with Spain having 20% unemployment rate. The people who are employed find it difficult to negotiate for pay increases because they are scared of losing their current jobs and being jobless. Financial experts have predicted that salaries will remain the same and some will be reduced in the coming years if the financial crisis escalates.
The crisis has led to increased unemployment levels. Because of this, demand for goods produced by companies has fallen as people are having less money to spend. With a dwindling market, corporations have decreased their capital ventures in preparation for riding out the economic burden.
It is, therefore, clear that in an environment of reasonable demand and low competence in use rates, then there is no prospect of any remarkable proceeds in investment (Madslien).
Another effect of the crisis is seen in the currency moves. The virtual fall down of Greeces economy has affected the European Union. This is because all the nations in Europe use the same currency hence deteriorating the Euro dramatically. owing to Euro deterioration, the dollar has sequentially strengthened. The weakening of the Euro currency has led to larger interest rates and loan costs in the continent.
This has affected the capacity of other European nations to move away from their own financial downturns. For instance, Italy and Belgium have above 100% debt levels and this shows how the Greeces problem has potentially extended to other nations.
Finally, the fact that the crisis has made the Euro to fall alongside other currencies is advantageous to exporters in the euro zone since it makes the goods they sell overseas cheaper, leading to high demand. As a result, exporters have started recruiting more persons and investing more in buying production machines.
This has had a direct effect on the U.S since the cost of exports has increased hence restricting exportation. Since exports are vital for stimulating economic development as well as assisting nations to pull out of their own recessions, then this has offered a major impediment to any economic recovery.
Conclusion
As the Greek financial burden now approaches its fourth year, the world is watching how the country deals with its economic crisis. Since this countrys financial problem is international, then there is need for involvement by the outside world. Today, the world is struggling to come up with a solution to this financial burden.
Several packages and answers to this dilemma have been formulated but the world has to wait and see how the packages help in solving the crisis. Some people trust that a default is unavoidable and would have a domino effect on the financial organizations and nations in the world.
As a result, people outside Europe should be concerned about the economic crisis in Greece, as it will affect most if not all the countries in the world. In addition, they too are suffering from slower wage augmentation, increasing taxes and increasing retirement ages.
Works Cited
Madslien, Jorn. Why Greeces problems matter. BBC News, 2010. Web.
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