How European Debt Crisis is Affecting US Economy (Explained)

Whenever we switch on the TV or swap the newspaper, we commonly hear the term Euro Crisis. How it has affected people of US? The tremors of the crisis is not limited to Euro market, it has rattled United States and Atlantic, as well. Various reforms have been taken place, however, considering close relationship between United States and Europe, any financial slowdown or upheaval may affect US and Atlantic financial markets.

Reason of Euro crisis

Europe crisis is explained in a very simple way. In Europe there are some countries who are financially sound, but there are certain countries that is way too much in debt, thus translating to excessive debts in contrast with a size of economies. The officials are trying to pacify the hard effects. The countries termed as PIIGS (Portugal, Ireland, Italy, Greece, and Spain) are triggering crisis. If, any disaster will happen, it will start from following countries.

• Ireland is under debt of 109% of the economy
• Italy is under debt of 121% of the economy
• Greece is under debt of 165% of the economy

Thus, it means these highly leveraged countries will brink European economy to the brink of disaster.

How it has affected U.S Markets

A million dollar question, how euro disaster has badly affected U.S markets. According to analysts and economists slow recovery is the possibility. It has directly affected U.S economy, how and why. U.S.A has granted loans worth $700 billion to Great Britain, $300 billion to France and Germany, US $50 billion each in Italy and Spain. This clearly signifies that if these PIIGS countries are unable to pay their debt, the American credit house will suffer credit crunch. Moreover, overseas investor will face tethering problems, if Euro zone remains in a further trouble.

Effect on Investors

This has led currency investors to panic, and has adverse effects on the financial world. The 17 nation bloc uses Euro currency, and its aftermaths can’t be excluded.

Effect#2- Reduction in Exports

The second aftermath is reduction in US exports, as it has led to huge trade losses. The industries that are affected by this crisis are mentioned below

• Cars
• Solar Panel
• Drugs
• Apparels
• Computer Industry

With 14% of U.S exports go to euozone, a weak consumption can deteriorate US economy and can land them in trouble. The investments of these companies are at a stake, especially all those companies who have heavily invested in the market.

It is the biggest market of US companies, with huge no of FDI from foreign countries, therefore any loss to euro economy will have a direct impact on the above mentioned companies.

Wrap Up

• The three sectors of U.S markets will be impacted by the economic downturn
• Banking- heart of any economy
• Foreign Direct Investment- Vein of any economy
• Manufacturing or Exports sector

Undoubtedly, these three sectors can pull down the economy to zero. Moreover, US economy is also not in a stable state i.e. it is suffering from unemployment, and debt crisis. In such a scenario, it can earn money through exports, but with the global uncertainty has led to the problem of Great Recession. European debt crisis has only magnified U.S problems and created havoc in the whole world.

Advice for Investors : The key to success is position yourself according to the price movements of the economy.