Sample Essay on Effects of Euro Zone Crisis on U.S.

 Effects of Euro Zone Crisis on U.S.

The euro zone crisis affected all economies across the globe and the U.S., ranked among the strongest economies in the world was not spared either. All the 17 euro region counties comprised seventeen percent of the world’s economy by generating $12.2 trillion in gross domestic product in 2012.

The economy of Germany is the 4th largest globally and its financial ties and strong trade and investment with the US ensures that when there is shock experienced in one region, the effects it has on the other are important. The European crisis directly affected trade in the U.S. in the form of lost trade ads the demand for goods from the US went down because of reduced incomes.

The euro zone is the 3rd largest United States export destination accounting for at least 15% of its good exports as well as one third of its service exports. The United States is tied to the global economy in numerous ways for instance through exchange rates, interest rates, credit spreads, bank borrowing costs and trade.

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Therefore, this means the crisis will affect the U.S. as well and in more than one way. U.S. banks are global and most of them have operations in European countries. This means that if there were to be any severe dislocation or unraveling in the region everything would be placed on a balance sheet and this would raise the risk the country faces.

Bank capitals for instance would go up, credit spreads would increase, assets on balance bank sheets would also lose their value. Also the disorderly Greek exit or the unraveling commitment it made to the Euro zone would cause serious repercussions in the United States above and over any form of direct exposure.

The mortgage rates in the U.S. have always been low because of the Fed’s policy aimed at keeping them low. However, the crisis also affected the mortgage industry as most of the deals available are under conservatorship arrangement with the government.

In regard to flight safety, the question that comes to mind is the effect a weakening euro and a strengthening dollar has on the U.S. economy and especially in regard to a spike in U.S. exports costs. This is largely affected by the degree of changes noted in either currency. The euro crisis effects on the U.S. economy also have a positive effect and this is because the country remains a safe haven for a large number of investors.

When the problems in euro zone intensify, investors turn to the United States which has relative security and this helps build its bonds and stocks as well as boosting its stock markets and lowering the interest rates.

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