Impact of Greek Debt Crisis on the United States

The Eurozone’s debt issues in 2010 and 2012 put the global stock markets in jeopardy. This time the Greek debt crisis had a tremendous impact on the US. In the recent days, financial markets have seen a downward trend. But many are of the view that this time the impact is comparatively less in the US.

Let’s have an insight into the Greek debt crisis impact on the United States.

Causes of Greece’s Debt Crisis

After Greece got an official entry in the European Union (EU) in 2001, a lot of flawed decisions were made which resulted in the present economic turmoil of the country. Being a member state of the EU, Greece legally took the euro as its currency and enjoyed lower interest rates, which helped the country borrow money in extortionate amount. In the meanwhile, public debt occurred as Greece increased its employees emoluments and meted out pensions generously instead of investing in the important sectors. Tax evasion also took place at large level. As a matter of fact, Greece’s debt raised to 113 percent of GDP in 2009, and at present it is estimated to be around 175 percent. Apart from the economic mismanagement in Greece, the country had a real setback when international rating agencies cut down the country’s credit rating to junk status.

Adverse Consequences of the Debt

Many macroeconomic indicators decreased due to the debt crisis in Greece. The government deficit raised to — 15.7 percent, which is far below than EU’s 3 percent. Besides, the debt to GDP ratio climbed up to 175 percent. Similarly, there had been a downfall in terms of employment, household income and deflation too. While unemployment in the U.S. was around 7.5 percent in 2013, Greece recorded a high 28 percent unemployment in the same year. Household income witnessed a decrease by more than 30 percent. Investment and consumption opportunities were almost reduced to zero percent. Due to continuous falling of wages and prices, the country faced a real deflation threat. Despite having assistance from international organizations, the political and economic policy reform failed to revive the Greek economy.

Impact on U.S. Economy

If you are thinking that the Greek crisis is confined to the European Union and its member states only, then you are wrong. It had its share of impact on the United States too. The economic relationship between the US and EU is one of the largest in the world. The Greek debt crisis had made the US exports more expensive and unobtainable to the member states of the European Union. Moreover, it had also disrupted the financial stability of the American market, and created a negative impact on the European stock market.

Conclusion

The Greek financial crisis is broadly recognized as the worst fallout of the Great Recession. International agency like International Monetary Fund (IMF) has failed to help Greece recover from the economic turmoil. Considering the ongoing issues, many experts believe that a Greek default or exit from the European Union is likely to happen. Unwanted consequences are likely to occur under both circumstances, and that will create a significant impact on the U.S. financial markets and exports. If the Unites States is to retain its continued growth, then it should not ignore the current crisis situation in Greece.