Greece is a country in Europe which is undergoing serious financial crisis and as such by extension affecting the Euro-zone as a whole. Euro is a currency adopted by most of the European countries including Greece. Europe is among the highest importers from the US. This means the higher the export to European countries including Greece then the better the GDP of the United States. Greece has sunk into international debts to a point that it can only either be bailed out or pull out from the Euro-Zone system economy and devise or mint their own currency. The world economy is interwoven like the web and thus, when one limps, there is the spillover effect. Despite the fact that Greece currently contributes less than 0.05%in import from the US, its financial crisis cannot be undermined as they can affect the economy of the whole world indirectly through the principles of Vroom as elaborated in the expectancy theory.
Some Of The Ways In Which Greece Impacts The US Economy Negatively Includes:
- A strong Dollar and a weak Euro, This might have a negative impact on the economy of the US in the long run. A strong Dollar makes imports cheap to locals and makes exports expensive. So, whatever little Greece was importing from the US will stop and Greece will look for another destination to source its products. This means lost revenue on us economy.
- Domestic companies will be negatively affected and there will be a serious trade imbalance.-Since economy is the only subject which works on assumptions and on holding some factors constant. Then a strong Dollar discourages the Euro-Zone economy countries to look for imports from the United States and indeed opt for other countries. So, aggregate demand for local products in the US goes down. This is because importers have shifted and locals are using imported products. The long run effect will be that local industries in the US will be
- If Greece decides to print their own currency, it means monetary policies in respect to money supply and fiscal policies on government expenditures will be boosted. This will have a negative impact on the US economy since it is part of the international stakeholders who have a claim on Greece. Greece will easily pay back its debts and thus cause a weak dollar since it will not pay by Euros.
- Due to rationality theory principles, there is a likely possibility that if Greece exits the Euro-Zone system, other countries which have still been on financial difficulties like Italy and Spain may borrow from them and also exit the system.
- Since the US is one of the international creditors claiming a stake on the ailing Greece economy and Greece economy is derailing payment. Then the money held by Greece and is due to the US would be contributing positively to the US economy which now it does not.
- The low aggregate demand for US products from locals and foreign Euro-zone players will cause a drop in price levels and this will lead to unemployment in the long run.
Since economic stability is an equilibrium state, it means that this is a relative conclusion and it is valid only from the fact that it outweighs some positive factors which can be associated with currencies of other countries being weak and the Dollar growing stronger and stronger.
The Following Few Points Outline Some Of The Positive Impacts The Greece Crisis Has On US Economy
- Stocks will be on high demand– In the short run US stocks will be on demand since investors will be skewed toward a secure security instrument. However, in the long run, everybody will have bought the security and the market will flock with US-based securities. This will cause a low demand and with the high supply, then prices will drop drastically and may be even harder to reverse the impacts.
- It boosts foreign exchange reserve in the short run– Those people who will be doing business with Greece from the US will be encouraged to do so as dollar strengthens. This means they will be exchanging to Euros. Also, people will be encouraged to visit Greece from US.
- The purchasing power of Dollar will be high and thus, if Greece and Euro-Zone, in general, must import from US, then it will always result to a positive balance of trade and thus a boost to the Gross Domestic Income and a good living standard by extension.
However, the overall effect of Greece on the economic status of US is negative and thus, every effort to rescue Greece from its financial crisis will be beneficial to the US economy both in the long run and the short run. These rescue programs can be implemented by either, the International Monetary Fund, and European Commission. This will stop the growing anxiety from both the US and international economy as this affects the spending behaviors.