NEGATIVE IMPACTS OF BREAKUP OF EUROZONE

When Greece was in doubt whether to leave the Eurozone or not, then every other nation in the world was tensed. But what was the reason behind this? It was obvious. Eurozone is one of the world’s largest economic zones. Exit of Greece could have meant the breaking up of this zone. This breakup of the Eurozone would have adverse effects which scares the financial market. Let us look at some of the negative impacts if the Eurozone breaks up-

1) No Easy escape– If a country becomes a member of Eurozone, then it becomes very tough for it to leave. This is because other member countries will not allow another member to endanger the survival of Eurozone and its shared economic fortunes. So, smaller countries are afraid to take the decision of leaving the Eurozone because after that, they may become investment dead for years. But large economies like France and Germany may take this decision. In this case, Euro will be largely abandoned and national currencies would again have to be adopted which would require central banks to go through difficult and expensive processes. Countries will face trouble because their individual finances are weaker as compared to that of the Eurozone. All the countries in the Eurozone whether big or small, whether the ones leaving or not will face negative impacts.

2) Losses in Trading-The Eurozone was formed to make commerce easier, to facilitate free trade and to eliminate currency risk for countries in this zone. So if Eurozone breaks, open trading won’t survive. Also, the current trade relations between these nations will become very tough to maintain if trade survives. Now the European companies will have to face the newly evolved merits and demerits of regional economies and currencies. All this would change the face of production and trade across Europe. Let’s take an example here. Tell me will the people in Greece buy a huge no. of Volkswagen even if the Greece currency weakens and Volkswagen becomes 40% more expensive than it presently is?

3) Worldwide Impact-United States has investments and trade links with the EU. So if the Eurozone breaks up, this link would be negatively impacted. If the Euro bonds are converted into another currency or there is some default, then these bonds will take up losses. As a result, imports and exports from US will shrink because of risk of uncertainty of currency and capital destruction. There will be a fear of global recession. The economies having a high growth rate would slow down. There would be less demand of goods from countries such as Japan, China etc. All the nations in the world will suffer in some way.

4) Recession and Depression-If the Eurozone breaks, most European regions would face recession and depression for many years followed by political instability as countries would lose wealth, industries etc. Investments in these nations will require a risk premium as in developing countries because of lack of trust. Commerce will never take place as easily as it did in the Eurozone between these nations. The world will gradually recover but then without any improvement involved.

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