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Eurozone Crisis: What's Next?

Eurozone Crisis: What's Next?

June 8, 2012
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The only thing certain about the ongoing economic crisis in Europe is that nothing is certain. Will Greece be forced to leave the euro? Speculation is all over the place. Will the already struggling Spain follow Greece even further down the dismal economic path? No one can really say yet, even as other nations are calling on it to be "honest" about its economic position.

In the latest Economic Update podcast from the Manufacturers Alliance for Productivity and Innovation (MAPI), Economic Kris Bledwoski says that Europe is "stumbling" toward a recession. Indeed, MAPI forecasts negative GDP growth in 2012 for the eurozone.

In a recent "Risk Chat" from Business Finance magazine, Peter Frank of PricewaterhouseCoopers lays out four possible scenarios for the restructuring of the European economy. (As noted in the article, this is not an exhaustive list, but rather some potential and likely outcomes.)

  1. Action by the European Central Bank will keep the eurozone together. Growth will be slow in this scenario, and inflation will rise. But that dreaded recession will be avoided.
     
  2. Highly indebted countries will go into voluntary defaults. In the long run, these countries will be able to rebuild credibility with investors, but in the short-term, Europe heads for recession.
     
  3. Greece exits the euro. The result of this scenario is simple: recession, and a particularly rough one in Greece. But, according to Frank, this move might be motivation for other countries to take the drastic measure necessary to correct their own financial systems.
     
  4. The stronger economies form a new currency union. This division, while good for those stronger economies, could be devastating for the weaker ones that are left out of the union.

So what does it all mean for countries (and companies) outside of Europe? Well, that goes back to the uncertainty I mentioned before. "The impact of the crisis for U.S. corporations will vary based on industry, extent of global operations and competitive position within industry, among many other factors," Frank says. "However, all companies can expect to see some degree of disruption and changes to their operations."

Watch the latest Economic Update podcast, Europe Stumbles into Recession, at www.mdm.com/economic-update.

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