Like black plague, debt contagion sweeps across Europe
Today, a sovereign debt crisis is sweeping across Europe. Call this one the black debt.
The black death probably started in Central Asia and was most likely carried by fleas riding on the backs of rats aboard ships, carrying commerce throughout the Mediterranean. The plague hit Europe in the south and spread north and west.
This plague started in the Mediterranean -- in Greece -- and the contagion has thus far been contained to the southern European nations of Greece, Spain and Portugal, each of which has had its debt rating lowered either by Moody's or S&P.
Sadly, like the great black death, this debt crisis has claimed lives. Three workers were trapped in a bank set aflame by protesters in Athens on Wednesday. And, like the plague, this debt disease may not be content to stay in one place.
Here is a terrific New York Times chart showing the interlinked European debt. It reminds me of graphical representations I've seen of the secret interlocking treaty agreements in Europe before World War I that sent the continent into its first great conflagration.
France has the greatest exposure to Greek debt among European nations, holding $78.8 billion of the $193.1 billion in total lender claims against Greece.
And the United Kingdom could be next. Britain is the middle of a national election and the nation has been warned by ratings agencies that if the new government doesn't come up with a workable plan to cut its budget deficit -- like, yesterday -- that nation could see its debt rating downgraded. Aside from being a blow to the psyche of a nation that perpetually struggles with post-colonial malaise, a rating cut would bring home the idea to investors there and abroad that the European debt crisis is no longer limited to the eurozone's weaker, more profligate southern members. If stolid olde England gets sucked in, then it's everybody's debt crisis. Goldman Sachs last week even compared the country's debt problems to Spain's.
Ah, Spain. On Tuesday, the prime minister was reduced to defending his nation's solvency. I don't know about you, but to me he sounds like the Kevin Bacon character at the end of "Animal House" who urges calm as a riot rages around him.
Spain need only look in the mirror to find the root of its problems. More than any other European nation, probably, Spain bought into the housing boom of the past decade. (The photo above is of an apartment building complex in Almeria, Spain, that was started during the boom and now sits abandoned.) Now, the country is paying dearly for it. Spain's economy shrank at a rate of 3.6 percent last year. The national unemployment rate is 20 percent, highest in the Europe and twice what it is here, and the unemployment rate among Spaniards 16 to 24 years old is an eye-popping 42 percent. That's a recipe for social unrest.
Europe is greatly burdened by vast and historic entitlement programs that unions forced on the government over the decades or that the governments themselves dreamed up. In order to live the good life, many European governments have mortgaged their futures. Now, they must make a new start.
In the past, plagues have sent Europe in one of two directions. The Byzantine Justinian plague of the 6th and 7th centuries plunged Europe into the Dark Ages.
On the other hand, Christopher Wren's magnificent new London emerged from the plague year of 1665 and the great fire of 1666.
For the sake of at least the U.S. economy -- and you saw the impact of the European debt crisis in Tuesday's stock market plunge -- let's hope Europe takes the latter option.
Follow me on Twitter at @theticker.
May 5, 2010; 2:08 PM ET
Categories: Deficit/debt , The Ticker | Tags: Deficit, England, European debt crisis, Goldman Sachs, Greece, Southern Europe, Spain and Portugal, greece debt, greece debt crisis, greek debt, greek debt crisis, portugal debt, spain debt, spain debt crisis, spain housing bust, spain unemployment
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