The Euro Crisis for Dummies: Why We Should Care?

By Tiffany

Once in awhile, I like to take my head out of the books, off of Facebook and I turn on the news. It seems that every time I do watch the news for more than 10 minutes, I see a new development in the Euro Crisis. Just as we have been experiencing financial strife in the US, the Eurozone has been experiencing the same problems. “But why should we care? We’re in America, not Europe,” is the question I can hear all of the uniformed asking. Well, I am here to hopefully demystify the situation and explain how the devalued Euro affects us all as global citizens. [Side note: I am not an expert. I am a Political Science major but let's be honest, that major is for those of us who are largely undecided about our lives. And I double major in English, so that's like double indecisiveness.]

Let’s start with how all of the financial drama began. The Eurozone, members of the European Union that use a common currency, is experiencing the same problems that the US has been in terms of the fall of housing market, the banking crisis of high-risk lending and borrowing, global recession, trade imbalances, and so forth. In other words, the Western world is falling apart. The member states of the Eurozone are in a particularly dire situation since they all use a common currency. Using the same currency was supposed to strengthen the European market as a whole but the system itself has some fundamental problems.

One of the main problems with the Eurozone is that the system does not have a fiscal union in place. Without a fiscal union, there is no overseeing power to make sure that all countries in the Eurozone are following the rules of the body. States have not given up enough of their sovereignty to actually enforce the guidelines of the Eurozone. Due to this lack of enforcement, countries and their banks were able to continue spending and loaning out money irresponsibly. Since all of the member countries are tied to one another, when one country is doing poorly it affects the value of the Euro as a whole.

Now, countries that are in the Eurozone like Ireland, Greece, Italy, and Spain, to name a a few, are defaulting on loans and are in major debt. Greece is one of the biggest problem countries of the Eurozone not only because of their massive debts and sluggish economy but also due to their unstable government and corruption within. These struggling countries look to powerhouses like Germany. Germany is one of the only countries in the Eurzone with a stable economy and low debt. Germany’s unique position places the country in a leadership role that allows Angela Merkel, the German Chancellor, to dole out austerity measures to the struggling partners. Many of the failing countries are getting upset with the strict measures Germany prescribes, but the countries who are doing well don’t want the burden of bailing out the other countries. Things are looking rough for Europe since none of these issues have a quick fix.

Still, why do us Yanks care? Well, Europe is one of our main trading partners. Of the little exports we do send out, around 20 percent of them go to Europe. If the European market is in trouble, then we are in trouble. If the European market does not get its act together, it could lead to a further global recession and further chaos in the banking system, since banks from all over the world are invested in the Euro. Other countries, including some in Africa, have also tied their currency to the Euro. With all these financial crises, the conclusions may be made that financial instability in one place leads to insatiability in other markets as well. Like the store, we are a World Market and we are all adversely affected in the long run.

[Lead image via Nagy-Bagoly Arpad/Shutterstock]