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Eight European Countries Charging Off A Sovereign Debt Cliff In 2010

european countries debt default

Half of the Eurozone’s sixteen economies
are at risk of becoming ‘unsustainable’, essentially bankrupt.

After driving a wedge between Japan and the US,driving a wedge between the EU and the US is next. China will state publicly that EU debt, bunds even gilts are more attractive than US debt. China will speak to the investment opportunities in Greece, Spain and east Europe as being more attractive than holding US debt whether they are are not. China will seek to move a large chunk out of US debt into EU related investments.

The US will complain and talk about national security and capital controls. China will then tell the EU that the US is holding up the show and the Chinese investment of hundreds of billions of dollars into the EU markets. Even with all their problems, China is right where they want to be.

Deficits and the ensuing sovereign debt used to be cyclical or structural. Now we have zombical ones: debt to patch holes in broken financial systems and deficit to prop up the deluge from a broken financial system. Ireland and Spain’s systems broke under the real estate bubble pops. The UK’s financial sector from leverage and bad investments, Greece is none of the above: the financial sector was not leveraged and its core capital was very high, never invested a penny in funny securitisations, no real estate bubble.

Perhaps it is because Greece was already and chronically in stimuli deficits which made their banks and real estate market more risk averse. So the deficits saved Greece from over-extending its credit in the good times and now they can change their fiscal behaviour to re-align. Alas, many other european countries dont have this “fat” to trim unless they take the stimuli back or cut down on other expenses.

European Commision Warns: Eight Countries Charging Off A Sovereign Debt Cliff In 2010
Vincent Fernando | Dec. 30, 2009, 7:45 AM

The European Commission (EC) itself has warned that the finances of half of the Eurozone’s sixteen economies
are at risk of becoming ‘unsustainable’, essentially bankrupt. As shown in the Wall Street Journal graphic below, Spain, Ireland, Netherlands, Slovenia, Slovakia, and Greece are all teetering on the brink.

While relatively better off European nations would prefer not to bail out their flailing neighbors, the problem with the euro currency union is that their fates are ultimately all tied together via the euro, even if politically they believe themselves to be separate countries. Thus an old criticism of the euro system is appearing more relevant than ever.

WSJ: They said a monetary union unsupplemented by a political union risked a fiscal free-for-all among governments, especially in a full-blown recession. The next year will be a good time to prove them wrong.

The focus in early 2010 will remain on Greece and its budget deficit at 12.7% of GDP, four times the EU limit. The Greek government is trying to hammer together a political consensus in parliament for a plan to bring down public spending without triggering more social unrest seen in the country’s streets at the close of 2009.

You can read more at Wall Street Journal

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