Posts Tagged ‘euozone debt crisis’

Portugal Faces Severe Fiscal and Economic Crisis as Eurozone Sovereign Debt Fears Grow

March 28th, 2011 Comments off

The weakest links in the Eurozone chain are known as the PIIGS. This acronym represents five fiscally vulnerable members of the European monetary union: Portugal, Ireland, Italy, Greece and Spain. Already, two of the five members of this august club have capitulated to the dismal reality of their public finances and are receiving a Eurozone bailout, which comes from a fund consisting of borrowed money, borrowed that is by slightly less indebted Eurozone partners. Now, it would appear, Portugal is likely to be the third affiliate of the PIIGS to get a bailout.  Portugal’s Prime Minister Jose Socrates has resigned after Lisbon’s parliament rejected his proposed austerity package. Socrates claimed that Portugal did not need financial aid, and could resolve its fiscal problems through its own austerity measures. That hope appears now to have been abandoned, and the expectation is that Lisbon will soon come crawling for a bailout, as the spread on its bonds gets ever wider.

Standard & Poor’s, S & P and Fitch have all severely downgraded their ratings on Portuguese government debt. In the meantime, a new government in Ireland is stating that it wants to negotiate a less severe austerity package than the one accepted by the previous Dublin government in exchange for a Eurozone and IMF bailout. As Portugal wobbles, Ireland confounds while continuing to bankrupt its citizens as the price for bailing out its reckless banks. In the meantime, the Greek economy is deflating, making it ever more likely that Athens will eventually default on its public debt. That still leaves the two biggest PIIGS without a bailout.

After Portugal, Spain is the next likely candidate for the bond vigilantes. The most significant problem with Spain is that it is so much larger an economy than the previous candidates for a bailout, it is unlikely that the Eurozone and its already indebted taxpayers could sustain the massive public borrowing required to rescue Madrid from its own fiscal follies.

The sovereign debt crisis in the Eurozone is spinning out of control. And not far behind in entering  this vortex of doom is the United Kingdom, which despite massive public spending cuts retains an unsustainable deficit as its economy contracts. And then there is the United States, with a national debt now virtually at parity with its annual GDP, and projected  to have a record deficit in the current fiscal year, exceeding ten percent of its annual GDP.

In my book, “Global Economic Forecast 2010-2015: Recession Into Depression,” I predict that by 2012 a massive sovereign debt crisis in the major advanced economies will plunge the world into a global economic depression. All the recent developments regarding fiscal issues in the Eurozone, UK and U.S. do not give me any reason to alter my forecast.



More Warning Signs of Worsening Eurozone Fiscal Crisis

November 12th, 2010 Comments off
The Financial Times is reporting that Ireland’s fiscal debacle, facilitated by the government’s decision to bailout Anglo-Irish Bank at public expense, is beginning to inflict collateral damage on the wider Eurozone. Specifically, Italy and Spain are seeing their government bond yields escalate in lockstep with Ireland.

In effect, as the FT puts it, the bond vigilantes are already expecting Greece, Italy and Portugal to default on their public debt, and that Ireland and Portugal will need to follow Greece in seeking a Eurozone bailout.

As the sovereign debt crisis in Europe remains volatile and unpredictable, how long can the current low yields of U.S. Treasuries last, as bond vigilantes begin to look at recent moves by the Federal Reserve, in particular the second round of quantitative easing? It may not be long before the Eurozone public debt crisis claims not only more European victims, but also migrates to the United States.


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