Euro zone and The Financial Crises

Euro zone and The Financial Crises

Euro zone and The Financial Crises

Introduction

Under the law, when a company declares bankruptcy, its common stock holders lose all their investments. The preferred stock holders have to wait until the bond holders get their shares of the bankrupted company. The losers are: company employees, the stock holders, the preferred stock holders and bond holders. The company restructures its loads, layoff some employees and becomes leaner and hopefully meaner. If the company's CEO and officers are capable of running the company, watching its spending, emphasizing the quality of its products and stepping up customer services, the company most likely will come back a stronger company in the future.

Some companies in the same sector will suffer some setbacks on the stock market, the stock market as a whole will take a break; digest the information and moves on. The bond holders will take some write off and offset the loss. It company stocks will come down to reflect loses. In time, the stock may recover if the loss turns out to be a minor one. If the company can make more money from other portfolio to offset its loss on the investment on the bankrupted company, the stock will recover soon. The countries are no different than companies.

Discussion

Take a look of Euro zone which has faced challenges from financial crises in Greece and Ireland, Portuguese and Spanish economies. Their combined GDP is about $3.6 trillion, about 1/4 of that of the United States. Their combined total debts are $3.9 trillion or about 110% of its combined GDP.

Portugal

Debt   $286 billion

GDP    $230 billion

Italy

Debt       $1.4 trillion

GDP        $1.75 trillion

Iceland

Debt    $5.3 billion

GDP     $12.5 Billion

Ireland

Debt   $286 billion

GDP     $229 billion

Greece

Debt    $236 billion

GDP     $350 Billion

Spain

Debt   $1.1 trillion

GDP     1.47 Trillion

These countries' problems are high federal deficit, high national debt and lack of adequate revenue to pay for its loans and government programs. In other words, these countries are on the verge of risking bankruptcy. If they can borrow enough money to get over this time, the crisis can be avoided easily. But the problem is other countries do not want to lend them money unless they put their house in order. (Featherstone, 1994)Other EU countries such as Germany and France do not like to lend money to Greece unless Greece reduces its annual deficit to a more manageable 3% limit of its GDP which is currently at 13% of its GDP. These countries and IMF if have to, have enough money to lend money to Greece then the crisis can be avoided.

The Euro

As expected, Western Europe, some convergence of European financial sector with a significant impact on the economy and businesses, moreover, after stressing that investment and the movement of financial assets more frequently and more intense when the conditions for stability of the close economic and political subsidies, two phenomena can be observed in 2000, this includes the following, one hand, the national interests of the state revenue considerations electorate, and social policy must negotiate a significant impact on the willingness ...