How Does Greek Default Affect the American Market?
The Greece debt crisis of 2015 sends shockwaves not only to the local Greek economy, but also to the European Union members, as well as to global economies. After all, no one country is ever alone in this world. Even North Korea does some external trading with China, South Korea, India and Europe.
So, how does the recent Greek debt default affect the US?
The first obvious hit was the US stock exchange, which experienced a massive blow after closure of Greek banks. This was the lowest drop in two years time, which analysts said could hamper the US economy’s much needed recovery.
US President Obama had a conversation with French President Hollande over the need to “reach agreement on package reforms and financing” for Greece. The goal is to allow the ailing country to remain in the EU. Standard & Poor’s had declared a 50% chance of Greece leaving the union.
The US has minimal direct trade relations with Greece, but considering the workings of global economies, everything is interconnected. America’s 1% exposure to Greek economy may not be as trifling as it seems when countries around the world – particularly Germany, France, China and Japan – are likewise affected.
Stock and bond markets are the most volatile in the short-term. Asian markets fell by 3% while European markets fell by 4% during the last week of June. As Greek’s economic future faces grim uncertainty, global markets are sure to fall correspondingly.
Already, the US futures trading experienced modest downturn. In the long-term, if the Greek crisis continues, the American T-bonds could strengthen the dollar and discourage exports.
Federal Reserve Chairman Janet Yellen said that the Greek economic turmoil has potential to disrupt global financial markets, including the US. This is because spillovers to the American market are inevitable.
If Greece leaves the union, it could drive the Euro down, causing investors into a withdrawal-frenzy from Greece and other vulnerable economies like Spain and Italy. Financial panic is picking up in Greece and looming the entire EU, which could eventually reach the US in a ripple effect.