In an earlier blog piece, I reported on the fact that ratings agency Fitch had dumped Madrid’s credit rating. Standard & Poor’s had also cut the Spanish government debt rating. Now Moody’s, the other major credit ratings agency, has joined the parade by dropping Spain’s rating by two notches. Furthermore, Moody’s added that France, currently with a AAA rating, faces acute danger that its rating may be dropped in the future.
The Eurozone debt crisis is clearly not being alleviated by the desperate machinations of the bumbling politicians. The crisis is getting worse, it is spreading, and along with that somber reality goes a rising tide of public anger and protest. The sovereign debt crisis is currently impacting Europe with dire consequences for the entire global economy.
Officer Larry of the NYPD is on his way to Zuccotti Park in lower Manhattan to arrest peaceful protesters involved with the Occupy Wall Street movement. Being a public spirited member of the New York Police Department, Officer Larry does remind us that there is a global economic crisis underway that rivals the Great Depression of the 1930s.
global economic crisis
European Sovereign Debt Crisis, eurozone debt crisis, france credit rating, Moody's credit rating, spain debt crisis
Following of the wake of S&P’s warning of a default rating for Greece, another ratings agency has weighed in on the cascading European sovereign debt crisis. Moody’s has lowered its classification of Portugal’s sovereign debt to the level of junk. This comes despite a recent €78billion bailout from the IMF and EU, the equivalent of more than $111 billion in U.S. currency.
The latest ratings moves by Moody’s and S&P illustrate the lack of confidence that private investors have in the machinations of European politicians and their friends at the IMF in resolving the growing European debt crisis. If anything, these bailouts piled on top of bailouts, all requiring vast amounts of borrowed money financed by European taxpayers, assure that the Eurozone debt disaster will only further metastasize. It won’t be long before Portugal, like Greece, requires a second bailout, and perhaps Ireland will follow soon. Ultimately, who bails out an increasingly indebted EU?
global economic crisis
european debt crisis, European Sovereign Debt Crisis, moody's, portugal debt crisis
In a bizarre twist in the still-evolving global economic crisis, Dominique Strauss-Kahn, the iconic Director General of the IMF, has been arrested in New York in connection with allegations involving the sexual assault on a maid at a Manhattan hotel. According to news reports, the IMF head was removed from a Paris-bound flight just prior to take-off from JFK airport.
Normally, an allegation of sexual assault would not be a relevant factor in the global financial and economic crisis. However, the 62 year-old Strauss-Kahn and the International Monetary Fund he runs is so pivotal a player in the global economic crisis, any hint of scandal or illegality that may force him to resign is bound to have a profound impact on global markets. It was under the leadership of Strauss-Kahn that the IMF was center-stage in constructing the bailouts of insolvent nations in the Eurozone, specifically Greece, Ireland and now Portugal. Should he be formally charged, it is a certainty that the IMF will need to find a new leader. This will add a huge dose of uncertainty just as the European sovereign debt crisis is growing to levels that may have surpassed the possibility of containment.
global economic crisis
Dominique Strauss-Kahn, European Sovereign Debt Crisis, IMF, international monetary fund
The International Monetary Fund has released a report that contradicts what the Eurozone politicians have been boasting of for about a year. Despite assurances that vast sums of borrowed money loaned to the even more indebted Eurozone nations of Greece, Ireland and very soon Portugal would contain Europe’s sovereign debt crisis from spreading like a malignant cancer to the more substantial economies in the monetary union, the IMF apparently begs to differ.
According to the most recent IMF report on the European debt crisis, “contagion to the core euro area, and then onwards to emerging Europe, remains a tangible downside risk.” In the meantime, European politicians are already frantically looking at renegotiating their bailout loans to Greece and Ireland, with a reduction of the unbearably high interest rates being incurred by Athens and Dublin. But many savvy economists have already warned that these massive bailouts are an expensive fallacy, and will only delay the inevitable: restructuring loans that can never be repaid, or sovereign default.
The tone of the most recent semi-annual IMF report makes it clear that those who actually look at the numbers know that the European sovereign debt crisis is far from over, and has every possibility of getting much worse.
global economic crisis
european debt crisis, European Sovereign Debt Crisis, IMF, international monetary fund
Having published numerous blogs over the past year on the evolving sovereign debt crisis with the EU, I want to put these events into perspective. First point, the crisis continues to escalate, despite the several supposedly decisive (and costly ) measures enacted by European policymakers. Witness the bailout of Greece, and now the bailout of Ireland, along with the countless statements from EU political actors that these massive bailouts will prevent this crisis from getting worse. The reaction of the bond markets to the Irish bailout deal is a clear wet blanket being thrown at the EU.
Next point, given the disastrous track record of the European political class, it is highly unlikely they will prevent the next debt domino from falling, namely Portugal. After that, Spain, with a vastly larger economy than Greece, Ireland or Portugal is almost certain to be the next country in need of a bailout. However, it is unlikely that Europe will be able to cobble up the resources required for a bailout of Spain.
I therefore believe that the European debt crisis is now irreversible, and the only question is how severe the consequences will be. And a final point; the United States, which has only remained afloat due to its ability to borrow cheaply, has virtually all the same vulnerabilities as the struggling countries within the EU. Once the sovereign debt crisis strikes the U.S. with full fury, all bets are off.
global economic crisis
European Sovereign Debt Crisis, european union, ireland bailout, irish bailout
From Ireland to Portugal and back to Greece, the catastrophic public finances in the weaker Eurozone economies continue to throw off further nasty surprises, despite the massive debt-based stabilization fund the stronger economies in the Eurozone cobbled together to bailout their weaker partners. An example is found in ground zero of the European sovereign debt crisis, Greece. Fraudulent bookkeeping in Athens hid a massive and unsustainable government deficit. Once exposed, the official word was that the true size of the Greek deficit was now revealed, until that “final” figure was revised upward, then revised at a still higher figure again. Now we are informed that the last “final” upward revision was itself too low, and the latest figure from Eurostat is that the actual Greek public deficit for 2009 was an eye-popping 15.4 percent of national GDP.
The latest news on the Greek deficit, combined with bond spreads widening on Irish and Portuguese debt, are the latest markers pointing to sovereign fiscal doom in the Eurozone.
global economic crisis
European Sovereign Debt Crisis, eurozone fiscal crisis, greece debt crisis, greek debt crisis
The International Monetary Fund has issued its latest quarterly report, and in effect it talks out of both sides of its mouth. It gives the supposedly happy news that the IMF experts have revised upwards their forecast on global growth, now estimated at 4.6%. However, in contrast with this dose of economic optimism, the IMF report also issues a sombre warning about the perpetuation of the European debt crisis and its impact on the overall global economy.
According to the IMF’s director of monetary and capital markets department, governments in Europe must take “credible and decisive action,” if confidence in European banking and financial institutions is to be restored. In the face of this understated yet clear warning, the IMF’s boast that the danger of a double dip recession is “very unlikely” strikes this observer as being utterly preposterous and nonsensical.
global economic crisis
european baking crisis, European Sovereign Debt Crisis, IMF, international monetary fund
