This weekend the euro zone announced details of its plan to aid Greece to prevent Greece from defaulting on its debt. This bailout highlights both the positive and negative impacts of Greece’s troubles on the world currency market.
First, the positive: Greece’s problems are Europe’s problems. As politically unpopular and financially unpleasant it is to bail out Greece, it is an economic necessity. The possible domino effect that a Greek default could have on Spain and Portugal is combined with the unknown impact that a default would have on the EU mean that euro zone nations must act to keep Greece afloat.
Which leads to the negative impacts: Greece’s problem’s are Europe’s problems. While this plan alleviates the immediate fears of a Greek default it doesn’t change the immediate term outlook for the euro zone countries. These countries still lag behind other developed economies in terms of recovery from this current recession. Both Spain and Portugal are facing the specter of increasing deficits and the political and economic difficulties of implementing austerity programs of their own.
The struggle that the euro zone economy faces points to a continued downward trend for the euro against the dollar.
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