Question

What were the effects of the Greek financial crisis on global economy? and what would be the potential effects going forward?

Answer 1

In 2009, Greece kicked off the crisis. It announced its budget deficit would be 12.9 percent of Gross Domestic Product. Greece could not repay its debt and this led to  Rise in unemployment  Decrease in foreign investment  Political uncertainty
Greece financial crisis have negatively impacted the world economy. A Greek default would means billions in losses for European Banks and Government. There can be several mechanisms which explained as follows: First one is Stocks and Shares. Falling shares can cause cash flow problems which affects the trading companies. Another is Currencies. People might want to get rid of their Euro and buy other currencies, so these other currencies become Stronger. This affects the companies and the Economy at large scale.

different facets of the Euro crises was the fact that the whole world was affected by its impact on them. As reported by Wikipedia (2014) over 330 million Europeans use Euro as their currency . This currency is used for both internal as well as external trading and any collapse in the Euro value will reduce their buying capacity, leading to a major loss for those involved in importing their goods to Europe.  

POTENTIAL EFFECTS

Large government deficits and accumulated debt caused a fiscal crisis that resulted in bailout packages from the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC).

The countries most affected by the crisis were those with the largest imbalances. In a currency union such as the European Union (EU), the buildup of imbalances may cause the union to lose credibility in the financial markets, since the countries with imbalances cannot devalue the currency to increase their competitiveness and generate growth. Hence, a currency union is very fragile to changes in investor sentiment.

some potential effects are

1. Greece could successfully implement all the reforms, generate growth, and eventually repay all its debts, or
2. Greece could be in need of another bailout again in a few months, with renewed talk of “Grexit” (exit of Greece from the euro area) in the media and political discussions.
3. a Grexit often point to the negative consequences it could have on other members of the EU and the global economy in general based on (i) members’ exposure to debt and (ii) their loss of credibility in financial markets if the euro zone weakens economically.
4. Another factor that can affect the benefits of a devaluation is the strength of the country’s financial development. Because exporters tend to depend more on external financing than non-exporters, devaluation in a country with poor financial development could actually depress the economy.