Greek Crisis and Sneaker Imports
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HOW WILL THE GREEK CRISIS AFFECT U.S. SNEAKER EXPORTS?
As the European union struggle to find solutions to one of its members economic problems – it is faced with a domino crisis which may affect the US exports in the region. Problems in the Euro-zone may cause devaluation of the Euro to the Dollar. This will again lead to more appreciation of the Dollar to the Euro, thus likely making the US exports more expensive in Europe. However we may also see losses in market size as the area struggles with the economic down-turn and less disposable income. The Greek crises may cause export challenges for the US in general and in doing so the US brands of sneakers may not be able to out-compete the European models. We will seek to discover if there is a high or low correlation between the USD exchange rate versus the Euro and the exports to the European Union using historical data from the Census.gov together with exchange rate data from Freelunch.com. We anticipate that if US exports in general are highly impacted, then our sneaker exports will also be impacted.
Some Background
Greece signed on with the euro as the national currency in 2001 and has yet to have stability within its financial markets. The reckless spending within the country has already resulted in a previous 110 Billion Euro bailout, with negations of a second large bailout underway. With the crisis in Greece, fellow euro using countries are at risk due to the credibility of the euro.
Because many of the European countries have signed on to the Euro as their national currency, they have effectively removed one of the fiscal regulative policies from their own ownership. By using the Euro, they gain the advantages of international trade efficiencies but lose the ability to control the amount of money they distribute within their borders. As the Greek crisis develops, they no longer have the option to print money and “buy” themselves (temporarily) out of the crisis. They must now use other fiscal tools to resolve their financial crisis, for example issue state-bonds for loans. This is a problem which the Greek government has not succeeded very well in resolving at this time.
With the Euro and European interlock in the backing systems and monetary policies, there are pressures on the Euro to depreciate. Investors are worried and nervous and are moving money out of Euro to diversify risk. Many of them are buying dollars. This is again increasing the value of the US dollar, and lowering the value of the Euro. The process amplifies the downward effect on the value of the Euro. European leaders work hard to attempt to assist and bail out the Greek government, fearing the Greek collapse and the snow ball effect on the rest of Europe. However Greece is beginning to panic given their inability to actively introduce the needed policies to prevent collapse. This collapse may cause a liquidity problem in Europe and other “weak” countries may also suffer economic constraints, spreading and increasing the intensity of the crisis to more of Europe. Again this would increase the value of the Dollar and reduce the competitiveness of US shoes in Europe.
In the short run, such a down turn would challenge US exports, however in the long run, too much decline will cause disposable income to be constrained and we will see a reduction in the size of the market as well. Therefor it is in the interest of the US to try and assist at some time/point to stabilize the Dollar/euro exchange and provide necessary liquidity to the Euro-Zone. As the US did after the Second World War with the Marshall Plan; the US assisted with loans to Europe to rebuild, and at the same time build up economies and