Question

How did the economics of Greece, Italy, Spain and Portugal contributed to a global economic crisis?

Answer 1

These countries are known as PIGS countries. Economic crisis unfolded in these countries in form of high debt -GDP ratio and high unemployment rate. Unemployment rate was as high as 24 %. Economic growths in these countries were in negative. Since these countries were not free to use monetary policy, so economic crisis became more acute and sustained.

It contributed to global economic crisis in following ways:

• It reduced world demand and since austerity measures were imposed on these countries.
• European investors became highly skeptical about possible returns on investments. so investment demand also came down.
• Demands for US export tumbled down after European crisis.
• US stock market took strongest cue from European crisis.

Thus, European crisis prolonged recession of US and world.