Notre Dame students are smart—no doubt about that—but there’s a difference between being intelligent and being informed. You may excel in the classroom, but education needs worldly context beyond your ND bubble. This weekly column exists to keep you up to date with the latest happenings around the nation in 500 words or less. We do the research, you do the reading. HCNDXO
This week, HCND is looking at some of the major financial crises around the world. Here’s a debriefing of some of the major financial stories that are circulating around the news right now:
1. Greece
What you’ve heard: Probably one of the biggest stories on your radar, Greece missed the June 30th deadline to pay back its debt to the International Monetary Fund (IMF). Greek banks that were running dangerously low on cash were also desperately in need of another bailout, which the IMF offered, provided Greece fullfiled austerity measures. However, Greek citizens have notably rejected the austerity measures that creditors like the IMF have placed on Greeks, resulting in a “NO” vote during the Greek referendum.
How did this happen?: Greece has been facing financial uncertainty for years, and previously had a bad habit of fudging its deficit reports, making their financial situation seem more stable than it actually was. After Greece joined the Eurozone in 2001, it gained access to money from the IMF and global markets. However, Greece continued to borrow money from the IMF without fixing its poor economic infrastructure and tax evasion problems. Once the 2008 financial crisis came around, Greece’s budget took a major blow, and by 2010, it was on the verge of bankruptcy, costing the IMF more than $264 billion dollars in bailouts. Said bailouts weren’t able to save the Greek economy, however, and strictly enforced austerity measures (such as tax hikes and pension reductions) have led to an astronomical 25% unemployment rate and widespread poverty.
What happens now: As of now, Greece has finally struck a deal with creditors, and has agreed to implement austerity measures in order to receive a bailout. However, this has come as a huge disappointment to Greek citizens who were promised a relief from austerity measures by elected officials, and has resulted in protests from Greek citizens.
Why you should care: The Greek Debt crisis once presented implications for not just Greece, but the rest of the European union as well back in 2010. While this fear has subsided since then, the Greek debt crisis could still place the alliance of the European Union into question.
2. Puerto Rico
The Story: Puerto Rico’s governor Alejandro Garcia Padilla declared that the island’s 72 billion dollar debt was “unpayable” and (unless serious reforms are implemented), could create an economic “death spiral” for the island.
How did this happen? : Borrowing. Lots and lots of government borrowing. Investors in the mainland U.S loved to invest in municipal bonds in Puerto Rico because of their tax exempt status. However, the government continued to borrow heavily without effectively investing in economic programs and were forced to continue borrowing in order to pay its deficit, which accumulated drastically over the years. A huge exodus of multinational businesses from the island, mass emigration and a high cost of living haven’t helped things much either.
What happens now: The U.S has refused to provide a federal bailout, forcing the island to endure painstaking negotiations with creditors. Its commonwealth status makes it trickier for the island to manage the situation, since it currently can’t file chapter 9 bankruptcy (since it’s not a state), though a congressional bill aims to change that.
Why you should care : While Puerto Rico’s economic downfall wouldn’t create a problem for the U.S as a whole, it could create concerns for Wall Street investors and citizens with stock in the island, which could deal a blow to Wall Street. The crisis has also garnered the attention of several presidential candidates including Hillary Clinton, Martin O’Malley, and Jeb Bush.
3. China: Stock Market Plunge
The Story: China’s stock market prices took a huge plummet last week, and placed the savings of millions of Chinese citizens in danger.
How did this happen?: In recent years, China’s stock market has been driven heavily middle class Chinese citizens (as opposed to just wealthy investors), who often mortgage their homes and borrow money in order to invest. This has led to a huge boom for the stock market, despite a not so booming economy. However, within the past month, China’s market has experienced a dramatic drop in stock prices, putting the savings of millions of middle class citizens in jeopardy. This led to millions of borrowers rushing to sell their stock to pay back lenders, eventually resulting in a huge market plummet.
What happens now: The Chinese government has taken an active role in the crisis by providing billions of dollars to wealthy investors to buy stock, as well as placing more restrictions on citizens investment in the market. So far this has seemed to work, and the stock market has seen some growth and stabilization within the past week (although experts warn the crisis isn’t necessarily over).
Why you should care: China has the second largest economy in the world, yet the recent market crash could be revealing some critical problems. This could potentially lead to trouble for big trading partners and banks from around the world who heavily invest in China (like the U.S ), while some experts believe this crisis might be bigger than Greece. Additionally, this could potentially lead to citizen protests and problems for China’s middle class.
The HCND application is now open! For more information contact Rebecca Rogalski at rebeccarogalski@hercampus.com or Katrina Linden at katrinalinden@hercampus.com
Follow HCND on Twitter, like us on Facebook, Pin with us, and show our Instagram some love!