The current European crisis has elicited a lot of opinions considering the fact that the continent has been enjoying a bullish economy for a very long time. Most European countries were affected to a small extent by the global financial meltdown that the world experienced in 2008.
The economic success was highly attributed to the sound economic models that ensured that ordinary citizens were well protected from the effects of the global financial meltdown.
The Economic strategists who came up with the common currency policy did not envisage the long-term effects that this policy could bring. The value of the euro has gone down in recent times and the debt crisis in Greece and Spain makes the matter worse.
The problem being experienced in Europe has been brought about the common currency policy and financial globalization.
The majority of European countries have stronger economic models and social programs compared to America. The recent turn of events was quite unexpected since Europe has been an economic power house.
The average unemployment rate has risen to 20 percent compared to America’s 12 percent. The initial statistical estimates regarding trade have not been achieved by the introduction of a common currency.
Recent statistical reports show that economic integration has hurt the economies of many European countries. Financial flexibility has become very limited with the introduction of a common currency.
Countries such as Nevada and Ireland have almost the same economic model but Nevada has suffered less from the European crisis because it operates with the dollar.
Comparing the real estate business before the introduction of the euro and now, the business has dropped by almost half with Spain and Ireland being the most affected.
The European crisis will affect America in quite a number of ways. To begin with, the European crisis will affect American multinational companies operating in Europe since the high interest rates have led to a limited credit flow.
The financial woes in Europe mean that the stocks for American multinational companies will have to drop. Major exporters in America are threatened by the financial instability being experienced in Europe.
Americans will be more vulnerable since bank borrowing, exchange rates and interest rates are all affected by the global economy. The recession in Europe has led to an average drop of 3.5 percent in GDP and this means that the U.S is bound to experience some drop in GDP despite the response policies it has put in place.
The weakening of the euro and the rise in the dollar value has created financial imbalance that is affecting the U.S economy in a negative way.
Globalization has made global trade to grow at a faster rate. Economic integration is among the root causes of the economic crisis in Europe. Financial globalization encourages a free flow of capital without considering the domestic financial systems of a country.
The free flow of capital has made financially unstable countries such as Greece to experience a debt crisis. Integration of financial systems widens the economic gap between poor and rich countries.
The cross –market integration brought about by financial globalization does not have strict regulations on banking and securitization that protects countries from cross boarder financial woes.
The common currency policy in Europe is an integration policy that failed to meet its expectations and in the process hurting the entire global economy.
Financial globalization can only be beneficial if it is accompanied by good integration policies and financial regulations.