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The Euro Crisis: What The Currency Worries Mean For You

A Q&A with Georgia State University's David Bruce, professor of international business.

Hardly a day goes by without some reference in the news to Greece's economic woes and what that means for it and other countries that are on the Euro, which serves as the official currency of 17 countries in Europe.

But Greece's debt woes along, with Spain's banking concerns and fears regarding the debt of a handful of other countries has roiled the Euro fueling concerns about its future as a currency.

That's especially so now amidst increasing talk that Greece might scrap the Euro and return to the Drachma, its old currency.

We asked David Bruce, an international business professor at 's Robinson College of Business what the Euro crisis means for Georgia and how the issue affects us:

Q. For months we've been hearing about the Euro crisis, particularly the troubled economies of the PIIGS nations — Portugal, Ireland, Italy, Greece and Spain. Now, there's increasing talk of Greece exiting the Euro. Is the demise or collapse of that common currency inevitable?

A. It is not inevitable. However, it is true that some countries were not good candidates to enter the Euro Zone. Yet, each had particular reasons that made being part of the common currency a potential advantage. For example, investors from other Euro Zone countries would not face exchange rate risk.

Q. Why should we — whether we're a retiree from Ormewood Park, a coffee shop owner in Reynoldstown or undergrad at GSU — care if the Euro collapses from a personal economy standpoint vis-à-vis 401(k)s, investments or even the health of our local neighborhood businesses?

A. Having healthy trading partners helps the U.S. economy. Business confidence in the global economy leads to successful companies and investments rising in value.

Q. If the panic or uncertainty deepens, will countries and investors flock to "safer" currencies like the Swiss Franc or the U.S. Dollar?

A. Yes, panic or uncertainty in Europe should lead to money flowing into the U.S. dollar. That in turn would increase the value of the dollar.

Q. An appreciating dollar means stronger purchasing power for us as individuals and for businesses. Is there a downside to a stronger dollar for us at the local level?

A. As the dollar appreciates, there will be a variety of effects. Imports will get cheaper for consumers. But, this will put pressure on local companies that have to compete with the imports. Exports will get more expensive. So, if one works for a company that exports, that company could face less export opportunities.

Q. Georgia's biggest foreign trading partner is Canada, China and Mexico, respectively, in terms of exports. The only European countries in the top 10 in terms of trade exports are the United Kingdom, which isn't on the Euro, and Germany and the Netherlands. While none are expected to tip into recession, Germany and the Netherlands are on the Euro and will be affected by those weaker nations with economic problems like Greece. What's the real risk to the U.S. economy, and more specifically, to Georgia's economy in terms of a recession if Europe's woes deepen?

A. Adding all the European countries together makes for a major part of Georgia exports. Thus, Georgia exports could be greatly affected. Also, one needs to consider the impact on particular Georgia industries that may export a lot to Europe. Furthermore, even countries outside the Euro Zone, such as the U.K., could face problems for their exports to the Euro Zone countries. In turn, if that leads to more economic downturn, the U.K. would probably reduce purchases from the U.S.

Q. Should we expect a domino effect — a weakened Europe will hit Georgia's other big trading partners from Asia and Latin America and ultimately affecting the Peach State?

A. Yes, countries in those regions also export a great deal to Europe. As that demand goes down, it may become more difficult to afford Georgia products. Alternatively, companies in Asia and Latin America may try to increase their exports to the U.S.

Q. The Georgia Department of Economic Development said roughly 23 percent of corporate investments in the state in fiscal year 2011 — $1.6 billion and 4,045 in new jobs — came from overseas. What's your outlook for fiscal year 2013 in terms of foreign investment and jobs growth and/or stability in Georgia?

A. The United States remains the largest and most stable economy in the world. That attracts imports but also means that companies see advantages in being close to their customers. Over the years Georgia has been very successful in attracting foreign investors. It has done this by maintaining a good business environment and offering an excellent platform (infrastructure and services) for serving the U.S. market. During the last several years, this story has been well told and companies are likely to keep coming to Georgia. Job growth will remain slow. However, foreign investors and U.S. companies moving to Georgia will make a major contribution to local jobs.

Vinit June 07, 2012 at 06:44 PM
The time of global demise is not round the corner but waiting to burst over our heads like the heavens falling over you. Where are you Hercules when needed the most. 9 of the worlds largest banks have $228 trillion in exposure to OTC derivatives which are three times the size of the total global economy. Destruction is our destiny http://winningtrades1.com/2012/06/07/global-otc-derivatives-weapons-of-mass-destruction-wmd-infographic/
Péralte Paul June 07, 2012 at 07:35 PM
So you see no way out, Vinit?

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