With Greek long term bonds generating a spread in excess of 400 basis points above German sovereign debt, it is no surprise that ratings agency Fitch has again downgraded Athens, posting a miserable BBB minus. This comes after weeks of verbal gymnastics by the European Union, attempting to fool the markets into believing in its ambiguous, meaningless assurance of a bailout for Greece.
Despite the pontificating of reassurance being offered by a legion of European politicos, it is becoming increasingly evident that Greece is heading towards sovereign debt default at warp speed. In my view, either sooner or later (and much more likely sooner) Greece is fiscally doomed…and that is only the beginning of an irreversible sovereign debt chain reaction that will strike virtually all advanced and major economies, and plunge our planet into a synchronized global depression.
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Within the Eurozone Greece has the highest ratio of public debt to GDP, currently at 125%, prompting Fitch to lower the nation’s credit rating. Other rating agencies are likely to follow. The Greek stock market is in a tailspin, while Athens is coping with both an acute financial crisis and social unrest, as a wave a riots has broken out to mark the anniversary of a previous violent outburst.
The level of public debt in Greece is clearly unsustainable. The question being asked is if the Eurozone will bailout the Greek government. Such a policy move is not likely to be well received by the taxpayers in other Eurozone economies with lower debt to GDP ratios, namely Germany and France. More importantly, the dismal economic and financial crisis in Greece, compounded by ruinous public debt problems, follows on the heels of the debt conundrum facing Dubai World. In addition, other Eurozone economies face looming public debt crises in the not too distant future, including Ireland, Spain and Portugal.
Is the next bubble to burst in the global economic crisis a string of sovereign debt crises? Readers of my report, “Global Economic Forecast 2010-2015: Recession Into Depression,” are aware that I project a catastrophic sovereign debt crisis afflicting both the United States and the UK by 2012.
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