When the European Union voted to put up a $1 trillion fund to bailout indebted countries in the Eurozone, it implicitly rejected the alternative which was to purchase the Greek debt outright, making it an obligation of the EU as a whole and no longer just a Greek affair. By opting for the bailout, the European Union has taken a middle course between full debt assumption and abandonment which won’t work. The markets will keep pressing until the EU throws in the towel and buys up all the outstanding Greek debt. Shortly thereafter, it will have to do the same thing for Portugal and perhaps for Italy and Spain.
Greece owes $400 billion. Portugal owes $175 billion. And, over the horizon likes Italy which owes $2 trillion and Spain is on the hook for $819 billion. Against these numbers, a $1 trillion fund doesn’t inspire a whole lot of confidence.
Spain has kept its debt level low, 60% of GDP, thanks to the fiscal responsibility of the regime of President Aznar. But Italy has had no such prudence and now owes 115% of its GDP in debt, a percentage only slightly less than in Greece.
This run on the Club Med countries will continue and the $1 trillion fund will not be enough to stop it.
No comments:
Post a Comment
Spamming will be removed.
Due to spamming. Comments need to be moderated. Your post will appear after moderated regardless of your views as long as they are not abusive in nature. Consistent abusive posters will not be viewed but deleted.
Note: Only a member of this blog may post a comment.