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VIDEOThe Spiraling Debt of Greece and Other PIIGS
By
Fil Zucchi
Feb 04, 2010 10:45 am
We may be close to a "Lehman/Merrill/AIG kind of September weekend", but with no buyer of last resort.
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I have Buzzed multiple times that what we've seen over the last 18 months has been a rather crude effort to print money and/or shift bad debts from private to public balance sheets. They are views that have generated more than a bit of push back from Minyans on both sides of the Atlantic. I welcome those counter-arguments and, in light of the expanding facetime the sovereign debt problems is garnering today on various business channels, I want to to fuel the fire of the discussion by offering the following:
The participation of the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) in the EU structure is suffering a 9.0 earthquake -- these countries are now three to five times above the Maastricht deficit levels and over the last 65 years their populations haven't accepted belt tightening without socio-political unrest. So their choice is either to thumb their nose to the EU and the very essence on which the euro is based or suffer crippling popular strife.
And if anyone thinks that Germans and French will go along with using their already depleted coffers to prop up their millennial-old cultural enemies, I have multiple bridges to sell you. Also, bear in mind that the distinction between the ability of the PIIGS to sell debt to plug the immediate holes isn't nearly as serious as their ability to service this debt at even marginally higher than historical rates, and as a point of reference Italy to German debt spreads are now 0.60-0.80 bps wider than they have been since the euro came about. That extra 1% on debt loads of 100% to 130% of GDP goes straight down to the deficit making any notion of tightening belts even less likely. And so the spiral goes.
We may be getting rather close to a "Lehman/Merrill/AIG kind of September weekend" only this time there's no Paulson, Geithner, Bank of America (BAC), Goldman Sachs (GS), Mitsubishi UFJ, or any other buyer of last resort. Only the sovereign printing presses and the consequent comeuppance of economies invented to please the Brussel's polit-bureaucrats delusions of controlling a continent through an invented euro currency.
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