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Greek Debt Crisis May Be Canary in the Coal Mine For Eurozone

February 10th, 2010 Comments off

Greece is in the midst of its worst fiscal crisis since the end of World War II, with a budget deficit now officially stated as being 12.7% of GDP. However, given the past shenanigans when it comes to government bookkeeping in Athens, it would not surprise many if the true deficit ratio to GDP is even higher than currently admitted. The Greek government cannot employ monetary policy as a means to inflate down the value of its national debt, as it is part of the Eurozone. The primary policy option it has left is reducing its budget to sustainable levels, but that would require sacrifices on the part of the population that would likely lead to social disintegration on a massive scale. Already, mass waves of strikes are being planned, in protest at austerity measures being promised by Greek politicians.

Athens is hoping and praying that the wealthier and less profligate members of the Eurozone will bailout Greece, reducing the level of austerity that will be imposed on Greek citizens. Greek political circles clearly hope that the systemic risk posed to the entire European monetary union by its fiscal crisis will compel German and French politicians in particular to swallow the risk of moral hazard, and have their taxpayers bailout Greece. The news that the President of the European Central Bank, Jean Claude Trichet, will be attending an emergency European summit on February 11 in Brussels sent stock markets around the globe soaring, in the hope that Germany and France will bailout Greece. It should not surprise anyone at this stage in the global economic crisis that the best news for investors seems to be taxpayer funded bailouts, as opposed to real economic progress.

The speculation is that the ECB and key Eurozone actors will capitulate, and sacrifice their concern over moral hazard for the sake of preserving the euro. However, this is at best short-term thinking. The fiscal catastrophe Greece finds itself in today, and which Iceland has been experiencing for more than a year, threatens many other European countries. Spain, Portugal, Italy and Ireland, not to mention Eastern Europe and the UK, are all wrestling with exploding levels of sovereign debt. Even if the Eurozone political leaders and the ECB cobble together a bailout of Greece, they simply lack the financial resources to bailout the next wave of European sovereigns that will feel the wrath of a savage fiscal crisis that is actually being made worse by the cumulative taxpayer liabilities that are now expanding towards infinity.

Greece Faces Severe Economic Crisis Over Public Debt

December 9th, 2009 Comments off

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.

 

For More Information on “Global Economic Forecast 2010-2015” please go to the homepage of our website, http://www.globaleconomiccrisis.com