Prime Minister George Papandreou said on June 10 that Greece is exceeding its deficit-cutting targets for 2010. Sounds good, but does that really mean that Greece has a handle on its debt problems? Seventy-three percent of global investors would beg to differ, according to a Bloomberg report. In spite of Greece's almost $1 trillion bailout, most think that a Greek default is likely.
Greece's debt problems appear to be far from contained, and that's not all. As
European Financial Forecast editor Brian Whitmer wrote more than three months ago --
"the crisis will not stop in Athens."
As if right on cue, new Hungarian Prime Minister Viktor Orban and other Hungarian officials warned in early June that the country could suffer a "Greek-style crisis" and that the possibility of a default "isn't an exaggeration."
Japan's new Prime Minister Naoto Kan joined Orban in warning on June 11 that his country needed to deal with its debt -- the worst in the industrialized world at almost 219 percent of its 2009 gross domestic product. He said:
"As we have seen with the financial confusion in the European community stemming from Greece, our finances could collapse if trust in national bonds is lost and growing national debt is left alone."
Some economists have dismissed such talk as political rhetoric. But according to the June 9, 2010, issue of
The European Short Term Update. Prime Ministers Orban and Kan might not be too far off base:
"Credit default swap rates are spiking in neighboring Bulgaria, and failed bond auctions have recently plagued Romania, Portugal, Spain and even Germany. LIBOR rates, too, are rising. And since mid-May, European banks are again growing reluctant to lend to each other in the overnight markets, according to figures from the European Central Bank’s Deposit Facility. The credit contraction…is coming back with a vengeance."
Right now, the eurozone is the epicenter of these debt problems. EWI's analysts have a sharp eye on what they mean now -- and what they will mean in the future.