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How Greece is Affecting the Global Economy

Written By Brian Hicks

Posted September 9, 2013

If you ended up charging a lot of money on your credit card, and you couldn’t pay it off, would you want someone to bail you out? Probably so, which is why Greece is already looking another bailout next year.

bailout handInternational inspectors just finished an assessment of Greece’s debt, and they have concluded that the country may need another bailout. While it’s too early to decide anything right now, it seems as though there is enough support for one.

Currently, Athens needs 10-11 billion more euros through 2015. Greece has been in severe debt for years, totaling about 305 billion euros, or 160 percent of the Gross Domestic Product (GDP).

The first bailout was in 2010, and now the country is on number three. So far, it’s received 240 billion euros ($316 billion) in bailouts.

Many countries wonder if Greece will ever be able to regain financial strength. If the nation’s debt were forgiven and it were able to start fresh, would that save it and the rest of the world? Many have argued that if Greece were forgiven of its debt, Ireland, Portugal, and Spain would expect the same, which isn’t realistic.

On September 22, new officials will be voted into office in Greece, and this could mean a lot to the country. The final say of whether it will receive a bailout isn’t set until November, even though it’s quite clear it will happen.

Every bailout comes along with terms the government must meet. As of right now, those terms have not been laid out. It’s likely they won’t be revealed until the November decision.

What everyone really wants to know is if another bailout will help Greece’s situation. It’s evident that the last two bailouts didn’t help the country as much as was hoped, so what will the third one do? Will the country continue to rely on these handouts? It’s likely Greece will need to have even more stringent terms attached to its bailout this time.

Jeroen Dijsselbloem, Dutch finance minister, told Reuters:

The Eurogroup agreed last year to consider additional measures if necessary, such as further reductions of the interest rates on Greek loan facilities…If Greece were to meet precise conditions.

According to Greek finance minister Yannis Stournaras:

There is a possibility that next year we will have entered the market again provided we fulfill two conditions, securing a primary surplus [before interest payments on debt] and a positive growth rate [after six years of economic contraction].

So they are in agreement that if Greece follows through with the terms, it will stop needing bailouts. But no one will know if this is the case until April of 2014.

What Happens with a Euro Zone Bailout

The euro zone is on board to help Greece with its debt, but what this is going to mean for the rest of the world?

Back in March of this year, Cyprus received a bailout. When that happened, the euro sank against the dollar by a staggering 1.1 percent, as Business Insider reminds us.

When the euro sinks against the dollar, exported goods in the euro zone cost less. This is great news for Americans, but not so much for Europeans and investors.

A falling euro usually leads to falling stocks. European investors don’t buy into as many stocks, or even pull their money out, when their currency is lower in value. There’s just less money for everything – stocks, commodities, and bonds.

When Europeans stop investing, it causes declines in the U.S. stock market too because many U.S. companies conduct business with the euro zone.

This isn’t the time to start investing in European stocks, bonds, and commodities. Stay away from them at all costs.

The dollar will likely rise after a bailout is decided on in November, so make your move away from the euro before that time. You’ll likely see the euro bounce up and down right before decision, followed by a steady decline after the announcement.


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