Effects on Regional Growth

INT-610-X2205: MULTINATIONAL CORPORATE ENVIRONMENTS 12TW2

Effects on Regional Growth Short Paper

Southern New Hampshire University

January 15, 2012

John Christie

Since its inception, the European Union hasn't quite met the mark many had anticipated during the initial integration of the countries 1950s. The union promised both economical and political benefits. Expectations were set high that the union would generate competitive gains from trade and by eliminating the military conflict among the participating countries. Today as we look at Europe's sovereign debt crisis, promises and growth are threatened.

The sovereign debt crisis started in 2008, during this time, several European countries faced the collapse of financial institutions, high government debt and rapidly rising bond yield spreads. First with the collapse of Iceland's banking system, then it spread quickly to Greece, Ireland and Portugal during 2009. This economic crisis led to a crush of confidence for European businesses and economies. It has not only impacted the countries listed above, but because of the shared currency of the European Union, it has impacted others as well.

It impacts the other stronger counties because of the financial guarantees made by European countries, who feared the collapse of the euro and financial contagion. The Greek's lack of growth and responsible spending threatened to take down some of the largest economies in the world. As part of the loan agreements, countries receiving bailout funds are required to meet strict regulations--regulations designed to slow down the growth of debt and put the greater European Union in a better light.

In August 2011, official figures reveal that Germany and France's economies have slowed, partly due to the global economy, but also due to the poor outlook of the European Union. Germany is clearly the work horse of the European Union. For their economy to slow, it has a great deal of impact on the rest of the union. When Germany falters, countries already facing economic issues, like Greece and Italy, find themselves further in an economic emergency. When the German economy is strong and growing and exporting cars, machinery and other goods to China it can significantly offset the weaker of the 17-country European Union.

With the general economy of the EU begin impacted by struggling companies like Greece and Italy, it also put large blue chip companies at risk whose headquarters reside in the union. As more economist and analyst respond to the reports of a struggling EU and that investments should be avoided in the European assets, those companies struggle as well.

"Although investors should avoid risky European assets,