International Business Quiz

1.)        The reason why Greece, Ireland, Italy, Portugal, and Spain are occasionally referred to the peripheral countries of Europe because it is based on current economic statuses and stability. Currently these countries' economies are not in good standing and are in financial debt. There are two types of countries in Europe, core countries and peripheral countries. Core countries have been economically stable for many generations while peripheral countries are merely catching up. Compared to the rest of the European countries, they can be considered third world European countries as they are unstable and unemployement is rising. They are still considered to be countries that are in the development stage or recovering from a financial crisis. Alot of these problems are caused by over-population, the lack of jobs, and political corruption. These peripheral countries are currently facing strict government policies and restricitions, forced upon them by the European Commission to help them out of their current economic situations.

2.)         The European Commision bailed out the banks in Ireland and Greece in fear of the domino effect. Investors might see that these countries in the E.U. are failing and the other countries might follow suit. Eventually investor may see a pattern and pull out their investments and that will cause and economical melt down in the Core European countries. If the countries were left to default, all the banks would surely fail which would lead the countries in shambles. This would reflect poorly on the value of the Euro and in the long run it is the better decision for the entire E.U. Not only will these countries suffer, but the countries that have lended the money to help sustain them. If bankruptcy was declared, these outstandings debts will be devalued and maybe never be paid back. Essentially, the value of the debt owed would greatly drop or possibly become zero which in affect be a loss to other countries as well. To let them default would cause a chain reaction of events that is better to be avoided. This is one of the flaws of having a common currency between a variation of countries that have economical instability. Those countries slowly become more and more dependent on the core countries since they realize that it is in their better interest to bail them out. This dependency is what peripheral countries are taking advantage of and corrupt politicians exploit the situation knowing that they can't be left unheard.