Tuesday, February 09, 2010

Keep a Weather Eye on Europe

Ugly and uglier.

...The EU in totality must roll over or issue somewhat more than EUR 1.5 trillion in debt this year. The German Bund got pounded when the rumors started circulating that they were planning on bailing out Greece, and that of course will impact borrowing costs, which simply fuels a spiral

...unlike Greece, which has a GDP of EUR $261 billion, Spain's is EUR 1.134 trillion and Italy's EUR 1.406 trillion. Portugal and Ireland's economies are smaller, but they belie big problems, with the "best" indication being the external debt to GDP ratio.

Italy's is 127% (the US is running close to 100% at present), while Greece's is 161%. Spain's, on the other hand, is 171%. Germany, for all of its vaunted "strength", runs 178% of GDP, Portugal is at 214% and Ireland is running an unbelievable 1267%.

(Compare US external debt at ~100% of GDP. That's not good, but Ireland may already be a goner.)

...and don't look at Great Britain as a bastion of "fiscal responsibility" - they're over 400% - nor the Swiss, at 423%.

The Great Depression actually kicked off due to a failure of an Austrian bank.


J. Strupp said...

Ironically, these nations have something in common with the United States in the late 1920's.

Spain, Portugal, Greece and Italy are currently unable to effectively devalue their currency which has caused a deflationary spiral that has caused widespread unemployment and a ballooning fiscal crisis. Our adherance to the gold standard created these same deflationary effects in the early 30's and was the main reason we slipped into depression.

I had the opportunity to study the EMU in Vienna 8 years ago. This pending crisis in Europe is something I never thought I'd see in my lifetime. For the first time, I have serious doubts about the long term viability of the Euro in these southern European countries. You HAVE to have every tool possible to combat a crisis of this magnitude. The European monetary union appears to be in process of causing a depression that could eventually spread to more healthy nations in the Eurozone. I hope I'm wrong but I don't see how a country like Spain gets out of this mess while linked to the Euro. The Spanish are not going to tolerate 25% unemployment and the Germans aren't going to keep writing them checks.

Badger Catholic said...


GOR said...

"...but Ireland may already be a goner."

...and the rats are leaving the sinking ship. Foreign banks which flocked to Ireland to capitalize on the "Celtic Tiger" boom are shutting down left and right.

The latest, Royal Bank of Scotland (Ireland) (RBS itself was recently bailed out by the UK Govt. and Lloyds), just announced the closure of their 44 Halifax branches. Dutch-owned ACC Bank and Danish-owned National Irish Bank are also shuttering branches and bailing out.

Telling point: RBS (Ireland) was "the first to introduce 100% mortgages in Ireland."