Understand: At the top of the credit crisis, which worsened in 2008, the financial health of banks around the world was put to the test. The problems in real estate financing transactions in the United States have generated billions in losses and the banking system did not find another way to borrow money. To reduce the effects of recession, countries have increased public spending, increasing debt beyond the national ceilings. But the stimulus was not enough to raise Gross Domestic Product (GDP) to warrant paying the bills.
The first country to collapse was Greece, whose debt reached 340.227 billion Euros in 2010, which represents 148.6% of GDP. With the yellow-light, the economies of other countries in the region were inspected more closely. Portugal and Ireland drew attention because of economic weakness. However, the weak economic growth and rising public debt in the region already hit major economies such as Italy (120% of GDP) and Spain.
A relief fund was established by the International Monetary Fund (IMF) and the European Central Bank (ECB), with influence of Germany, the country with the greatest economic strength in the region. However, to get the rescue package, nations need to adapt to strict conditions imposed by the IMF. Greece was the first one to accept these conditions and saw public demonstrations against the cuts in public employment, social programs and tax increases.
Bottom line: Given the current scenario and the historical effects of U.S. crisis in 2008, I urge you to be cautious. No one can predict whether the crisis can contaminate all the countries of the eurozone. Nor is it known if President Barack Obama will be successful in his attempt to reduce the U.S. deficit. The uncertainty is very big and it is not advisable to venture right now.
My advice is: In times of great instability, it is essential to contain personal expenses. It is not the time to commit to long-term debt, such as purchasing property or vehicles. It’s time to save money and increase the pool of resources for possible emergencies, such as losing your job.
Long international trips are also on the list of expenses that should be avoided at this time, especially if the idea is to use a credit card as a primary means of payment. With the instability of exchange rates, consumers can have a very unpleasant surprise when they get their credit card bills.