Monday, November 28, 2011

Euro-Zone Shark Still Has Its Appetite

by Irwin Stelzer

Wall Street Journal

November 28, 2011

"A shark has to constantly move forward or it dies. And I think what we got on our hands is a dead shark." Woody Allen's description of his failing relationship with Annie Hall is as apt when applied to the euro zone. Tensions within the zone are mounting as we enter a week in which Italy, Belgium, Spain and France plan to tap the markets for some €17 billion ($22 billion) in new loans and, says Goldman Sachs, the European economy slides into recession.

Bankrupt Greece; junk-rated Portugal pleading with Angola for inbound investment; jobless Spain, facing some interest rates that have doubled in the past month; and recovering Ireland have already fallen to the bond vigilantes. Growth-free Italy is fighting a rearguard action, facing unsustainable interest rates despite the stellar reputation of its newly appointed technocrat prime minister, Mario Monti; Belgian debt, now equal to its GDP, has been downgraded, in part because of the inability of this seat of the EU to form a new government. France, consumer confidence dropping, is likely next. Some German IOUs were unsold, and prices of bunds are slipping. No euro-zone country and no euro-zone company can any longer escape the consequences of the structural flaw in the euro-zone architecture.

Nor can countries outside the euro zone. Great Britain, with high deficits, mounting debt, and a deficit-reduction plan that just might not work, retains its triple-A rating because it has its own currency and the rating companies increasingly consider governance when deciding whether to downgrade. Britain is considered governable, but that might change after Wednesday's strike of public service workers shuts down the country.


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