The Financial Situation in Greece essay

It is known that Greece debt due is on March 20, 2012 (Smith & Elliott). A Greece default could have serious implications for the U.S. financial institutions. Most financial institutions of the USA would have financial repercussions from the Greek default. It is possible that the banks of the United States may have rather large residual exposure to Greece through credit derivatives. Besides, it is known that today the U.S. Money Market Mutual Fund industry provides dollar funding for many European banks. The above mentioned exposures may “pose an enormous risk to continued functioning of the U.S. financial system” (Greek Implications: Watch the US Money Markets and CDS Issues). Moreover, as the bilateral economic relationship between the United States and the European Union is rather strong, negative implications of Greek default for the U.S. economy are inevitable.

Austerity measures may lead to the loss of confidence in the euro, and may cause depreciation of the euro relative to the dollar. These factors would reduce the U.S exports to the Eurozone and increase the U.S. imports from the Eurozone, “causing the U.S. trade deficit to widen” (Nelson et al. 13). It means that the slower growth rates in Europe may cause the U.S. investors “look increasingly towards emerging markets for investment opportunities”. It is possible that the weaker euro could make European stocks and asserts much cheaper and more attractive, attracting the capital of the USA to many Eurozone countries. (Nelson et al. 14)