An Associated Press article carried on the front page of the Intelligencer Journal New Era treats in some depth the potential ramifications of Greece leaving the Eurozone but hardly in a definitive manner. We are knowledgeable but not expert on the subject. Below are comments concerning certain of the questionable assertions from the article:
“The short-term financial consequences of Greece defaulting may be limited across the Atlantic. American banks already have sharply reduced their exposure to Greece by more than 40 percent to $5.8 billion, according to the government, and Cornell University economist Eswar Prasad said he foresees little immediate blowback for the U.S. financial sector.
“But the concern is that market speculation would then fall on the far larger economies of Spain and Italy. Both are deep in the red and heavily dependent on credit markets to stay afloat. And their debts are held by Europe’s big banks.”
Are we to assume that investors have been napping during this crisis? Has not at least half of Greek sovereign debt already been forgiven and other debt similarly written down on the books of the lenders? In other words, has not markets already adjusted for the departure of Greece from the Eurozone? Does this not also apply to the feared “contagion” of Portugal, Spain and possibly Italy also departing? Is it not possible that markets would give off one giant sigh of relief that, out from under the restrictions and mandates of the Eurozone, these nations will be able to price their currencies in a manner that will bring about their economic recovery?
“Many pension funds, insurance companies and other big investors have dumped or written off investments in Greece such as government bonds. But there’s no telling how the markets will respond to a default.”
That’s our point.
“Exports have been a bright spot for the U.S. economy, and Europe has played a big role. More than half of U.S. foreign investment and a fifth of all American exports go to the European Union. A significant slowdown there could mean less revenue for U.S. companies, less expansion at home and lost jobs for American workers.”
Indeed? Given the austerity being imposed on Greece, Portugal, Spain and Italy, are those nations now in a better position to acquire U. S. capital equipment than if they were freed from an overvalued Euro and draconian austerity measures? With an expanding economy and thus a need for imports, higher prices will not be that much of a detriment.
“U.S. manufacturers have added 167,000 jobs over the last five months, but a European economic collapse would hamper growth in two ways. It would weaken Europe’s general demand for goods. And if investors flee Europe for safer bets elsewhere, the value of the euro would sink and make American products more expensive.”
For what the observation is worth, the Watchdog’s sense from a recent visit to Italy, Portugal and France is that the value received for a Euro was not commensurate with the approximately $1.30 per Euro current exchange rate. Returning to the initial one for one seemed to bring value closer in line. However, much more likely would be a drop to say $1.25.
“Unemployment rates of over 50 percent for people under 25 in Spain and Greece have undermined the market for first-time car buyers in those countries. Unemployment across the eurozone is already at 10.9 percent, a record since the common currency was introduced in 1999. If that figure worsens still, it would further dampen American sales.”
How much goods can unemployed people purchase from the USA? This goes back to all of the pro austerity during recessions misguidance Only people at work can pay down consumer debt and pay taxes, thus balancing personal and national budgets.
“But Obama can’t even control the U.S. economy, after pushing through a $787 billion stimulus package in 2009 that critics charged with not doing enough to create jobs and spur economic recovery.”
Studies conclusively indicate the stimulus package stopped the precipitous economic decline. It was the ill-founded and largely malicious Republican opposition to additional stimulus advocated by the vast majority of economists and the Obama administration that has kept the nation in recession.
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