What if PIIGS leave the Euro Zone?
Impact to Multinational Corporations and Global Trade
Since the economic crisis of 2008, the world has become aware of the dangers of having a global interconnected economy. The development of large financial corporations and their ties with foreign organization has created an effect of systemic risk where countries’ economies now depend on the stability of foreign financial institutions around the word. This systemic risk, fed by economic bonanza, lack of regulation, and new and complicated financial instruments such as credit default swaps and synthetic collateralized debt obligations, was the main reason leading to the world economic crisis of 2008. Today, the world economy has begun to recover. Nonetheless, the poor financial status of several European countries threats again the delicate economic health of the world.
The PIIGS, an acronym referring to the five weaker Eurozone nations of Portugal, Italy, Ireland, Greece, and Spain, have been a subject of much discussion since the financial crisis of 2008. Their high levels for foreign debt along with their poor or even negative growth in GDP still places them as a real threat to the development and stability of the Euro Zone. Even though some of these territories may be showing signs of recovery, the possibility of a partial breakup of the Euro Zone still stands. In fact, if we consider previous financial crises such as the market crash of 1987, the emerging market meltdown of the 1990s, the dotcom bubble of 2001 and the crisis of 2008, it becomes clear that economic downturns occur, on average, every seven years. If that trend continues, we could be at the verge of witnessing the next financial crisis. Our paper will analyze the current situation of the PIIGS nations, among others, to predict the effects that a possible breakup of the Euro Zone would have on multinational corporations across the globe
To begin our analysis we will study the individual causes that...