In late 2009, another bubble had burst after the US housing market crash. This time it was in Europe. Specifically, Europe was beginning its ongoing three-year debt crisis, which was caused by rising household and government debt, trade deficits, and loss of confidence among other factors.

Fast forward to October 2012. Greece is considering leaving the Euro. Many European countries have undergone several elections on the sole basis that the previous parties had failed to remove them from the impending financial crisis. However how does this effect Canada? The short answer: badly. The fact is that since we live in a global economy, a recession will be felt by all countries that have economic ties with that country and so on until the whole global economy is severely crippled. As Europe struggles with its crisis, Europeans will spend less on imports and travel less to Canada, which will lower Canada’s GDP and ultimately its employment rate. Furthermore, as confidence in the euro falls, investors will look toward other currencies (ie. the Canadian dollar) as a safe haven. Therefore, the value of Canada’s dollar increases and people will not import Canadian goods due to them being expensive.

In order to counteract this problem, Canada should work with the IMF and the European Central Bank in order to avoid any European countries from defaulting on their loans.

References:

Kenny, Thomas. “What Is the European Debt Crisis?” About.com. About, n.d. Web. 9 Oct. 2012. <http://bonds.about.com/od/advancedbonds/a/What-Is-The-European-Debt-Crisis.htm>.

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