The PIIGS Are Back at the Trough

by Marilou Long on February 9, 2010

in Banks,Credit Crisis,Debt,Foreign Markets

The default risk is rising for the sovereign debt of the PIIGS countries, Portugal, Italy, Ireland, Greece, and Spain.  These are very small economies, but their dependence on the financial backing of Germany and the use of a common currency makes their fiscal situation a concern for the entire EU.

From a 2/8/10 report from Stratfor titled Germany’s Choice:

“After years of profligate spending, Greece is becoming overwhelmed. Barring some sort of large-scale bailout program, a Greek debt default at this point is highly likely. At this moment, European Central Bank liquidity efforts are probably the only thing holding back such a default. But these are a stopgap measure that can hold only until more important economies manage to find their feet. And Europe’s problems extend beyond Greece. Fundamentals are so poor across the board that any number of eurozone states quickly could follow Greece down.

And so the rest of the eurozone is watching and waiting nervously while casting occasional glances in the direction of Berlin in hopes the eurozone’s leader and economy-in-chief will do something to make it all go away. To truly understand the depth of the crisis the Europeans face, one must first understand Germany, the only country that can solve it.”

Stratfor describes the two choices Germany faces: let Greece go down and bring fiscal discipline back to the smaller EU countries, or bail it out and take explicit control as Europe’s reserve bank.  The first choice could be better for Europe in the long run, but it would entail another round of financial problems in an already slow economy.

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