Discuss the Impact of the Debt Crisis in Greece on Eurozone Financial System

Discuss the Impact of the debt crisis in Greece on the financial system within the Eurozone

In the European Union, most real decision-making power rests with 28 national governments, each one beholden to its voters and taxpayers. With introduction of the euro, this now binds 19 nations into a single currency zone watched over by the European Central Bank

1) Selling of bonds

It led to most international banks and foreign investors selling their Greek bonds and other holdings, so as to be no longer vulnerable to what happens in Greece. This made Greece to be shut out from borrowing in the financial market veering toward bankruptcy, which threatened to set off a new financial crisis.

2) Economy and unemployment

There was shrinking of Greece economy by a quarter in five years, and unemployment level rose to above 25 percent. This is because the bailout money mainly was geared towards paying off Greece’s international loans, rather than making its way into the economy

3) Laws

Under the terms of the bailout by Greece was forced to pass dozens of laws before the end of the year, many of them measures that were supposed to have been passed years ago.

4) Defaults by other banks

Policymakers around the world were worried about a scenario in which Greece default would create bank runs in other countries, which in turn would force new defaults. Those defaults would create their own bank runs and an even bigger wave of defaults causing massive losses to foreign banks and trigger a new round of global financial crisis

5) Foreign investors’ withdrawal

Some of the foreign investors got nervous and start pulling their money out. Then other foreign investors realize how much of the recent economic growth has been a consequence of the credit boom, rather than of any change in the fundamentals. Then they got nervous and also start pulling out. Soon the credit bubble collapsed, leaving huge problems in its wake

6) Ejection from other European countries...