Wednesday, January 12, 2011

Sovereign Debt Issues In Europe

The link is to an article on Portugal's successful sale of public debt. It is one of the countries in the eurozone that has serious fiscal problems that present a risk to the eurozone. Economic growth is very low and it may have a recession in 2011. Nations with low growth and high debt levels have trouble servicing their debt and they may require help from European Central Bank (ECB) and the IMF. Portugal has a relatively small economy; therefore, the ECB and the IMF have the capacity to deal with its crisis. On the other hand, Spain also has serious fiscal problems and a 20% unemployment rate. Italy has similar problems. These are much larger economies and the ECB does not have the capacity to rescue them if they are unable to sell sovereign debt at reasonable interest rates. CitiGroup recently published a study suggesting that one or more of the eurozone countries could default on its debt or require restructuring. The situation in Europe serious and it would have repercussions on other economies, including the US, if it would worsen. Europe is one of the most important markets for US corporations and it is big export market for emerging market economies. Events in Europe could delay economic recovery in the US and slow growth elsewhere.

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