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The influence of Greece on the European financial markets

 

Europe has right now become a hub of financial crisis. This has resulted in higher market volatility and many implications to deal with.

One such country in the European Union that has been causing a lot of trouble is Greece. The notorious Greek debt crisis is considered a tragedy and seems likely that the Eurozone may want Greece out. The future of European Financial market may be in a rut and Greek exit seems like a viable option.

Greece has been facing issues relating to bank debts. This bank debt mountain is close to staggering € 320 billion which Greece has been facing for many years.

This number itself seems staggering but there are plenty more issues plaguing the country of Greece. Compared to 2010, the gross domestic product of Greece has fallen by over 25%. Adding to it, the debt to GDP ratio is close to 177%.

The population growth also seems to have stagnated with over 20% of the Greek population exceeding the age of 65; this puts Greece as the fifth oldest nation in the world.

It has a near 14% of the population which is under the age of 15. There have been discussions going on between Greece and the International Monetary Fund (IMF) where Greece is requesting a bail-out because of defaulting.

This is the first time, a developed country has asked for bailout to the International Monetary Fund.

If Greece exits from the European Union the result may be disastrous for it. This will lead to political and economical instability for Greece and also for the rest of Europe it may lead to a failed state. The reason this matters is because most of the Eurozone doesn’t seem to be concerned with it. There is a notion that Greece is dysfunctional in itself. The whole of the euro zone seems more comfortable and probably agrees that without Greece, the European economy may become more stable. Even though this is the notion of most of the European countries, the assumption may be wrong. The key is to look beyond what is happening in Greece. What Greece is facing right now may pose a threat which is inevitable to the whole currency of Euro. The European Union must take it upon itself to bring about reforms to resolve such bail outs from happening in the future.

Also Read:

What happens when a country defaults?

 

Even the Greece government which has brought in an uncertainty with their absurd referendum where votes will be taken from the citizens in order to assess the restructuring plan of the creditors and the analysis of debt sustainability. Effect of this can be seen on the currency also. Because of this, Euro has been depreciating sharply against most of the major currencies. If the prospect of Greece exiting the Eurozone increases, the International Financial markets will be affected and so will the foreign exchange markets.

Greek crisis - Ipmact on financial markets

This would also pose risk to the banking system as the exchange rate volatility would definitely increase. Greece also has that from other countries within the European Union such as the biggest country within it, Germany, to which it owes EUR 56 billion. But because these countries have classified Greece as dysfunctional they don’t seem to be taking interest in saving Greece.

The investors would not have to face the risk relating to the exposure to Greece; rather they will be exposed to the risk relating to the other countries that will be impacted by Greece. This puts the whole of the European market in jeopardy. With 19 Nations bound to a single Eurozone, it is most likely that they would be affected by Greece. The debt in the European Union has always been on a steady rise, but particularly in Greece the debt went uphill which pushed the economy downhill.

Even though Greece still has a very fragile relationship with the European Union, its leaders are steering the country with patience. One of the conditions under the bailout is to overhaul the entire economy and bring in measures that should have been brought years ago. The international stocks that are within Europe which also include a few emerging markets will no more be an attractive market for investment. Most of the investors will have the damage control as the top priority in their plan, if Grexit (Greece Exit from Europe) actually happens.

 

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