US Butterfly Effect and Greek Default

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This is a guest post from Rebecca Ashley

Some may consider Greece to be both literally and economically distanced from the United States. Ironically, comparisons between the US ‘Lehman brothers’ and the Greek default are being uttered across the European financial landscape and media network. This cross country comparison serves as a powerful and equally haunting reminder of the connectivity between global markets and individual economies. The global financial beast is one and the same. Greek wings are flapping within the European ecosystem pushing Europe to the verge of a financial epidemic. An epidemic Jeremy Cook, Chief Economist at World First believes could make “the (financial) falls of three years ago look like a picnic.”

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Greek debt can hardly be classified as breaking news, the spread of European contagion and increasingly bloated debt levels are frequently broadcast.

Notable change has come in the form of the International Monetary Fund’s (IMF) refusal to release the latest aid package without witnessing fresh Greek austerity measures. The resulting ultimatum is that Greece needs to change or help is not necessarily guaranteed. With the fragility of the Greek butterfly exposed, global markets are festering around the potential concept of a Greek default and its knock on implications for other debt ridden nations.

Dropping Euro’s into the gaping void of Greek financial activity no longer seems feasible and ratings agencies have been quick to circle around European banks. With ratings agencies poised to wield their market making hammer of destruction, Europe and key influencers have been scrambling to react.

Greece requires €12 billion just to survive until the end of the month. Suckling from stronger European powers, Greece is reliant on the triumvirate of the IMF, the EU and the European Central Bank (ECB) for funds, in particular those countries with greater economic clout such as Germany and France. The price paid by Greece in the shape of increasingly severe austerity makes default an alluring prospect.

Much debate has circulated around the nature of European policy; the Euro Zone is not a collective country but consistently plays a balancing game to achieve the economic status and influence of a single entity. With this economic status comes greater power and influence, but this balance of power between weaker and stronger elements is inevitably destined to collide as the forces of external financial factor shift and push. The exposed financial weaknesses of Ireland, Portugal, Greece and potentially Spain are beginning to service. Yet the situation is a catch 22, the Euro Zone cannot simply cut off a dead wound without risking global infection.

The United States is seemingly devoid of this balancing game but the power wielded by European economic status has crept into multiple facets of global financial elements. Put simply, European banks own the now rapidly escalating Greek credit and US banks own the European credit. Therefore, American financial products ranging from international bond funds and money market funds are poised in precarious positions.

The above information does not constitute as financial advice. Trading binary options involves a risk of loss.

Comments

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