The difference between the rich and the poor is that the former’s defaults on payments are due to unforeseen market forces, while it would mean bankruptcy and irretrievable debt crisis.
Perhaps we live in an unfair world of hypocrisy and double standards, in which powerful nations continue to flex their muscles despite humbled on the economic front. We subsist in a world in which wealth is measured by might and not by economic indicators.
But everything is not gloom and doom- even in Europe.
About a fortnight ago, the euro-zone crisis reached a critical stage when Italy joined the ‘Seven percent Club,’ a group of euro-zone countries whose borrowing costs (as measured by ten-year bond yields) have gone above 7% and stayed there. Its public debts are close to 120% of GDP.
However, Greece was fast reaching the precipice, facing an imminent collapse.
Ireland is also seethed in crisis, with a large budget deficit adding to its debt at a rapid pace. Britain is also in shambles but the economy has benefited from being a non-euro haven and can still borrow very cheaply.
Italy’s situation is not yet critical because the government does not have to refinance all its debts quickly at punishing interest rates. The average maturity of its public bonds is around seven years. Only in Austria and Britain is it longer.
GDP grew in most countries in the first half of 2011, though there were marked differences in performance. Germany and its large trading partners were sprightly. By contrast, GDP in Greece and Portugal crashed under the weight of austerity. More recently, the crisis has sapped the strength of even the so-called “core euro-zone” countries.
The strains of the euro area’s sovereign-debt crisis make a recession in the early months of 2012 likely.
Unemployment did not rise in many countries to feared levels, given the depth of the 2008-09 crisis. Germany has lower unemployment than it enjoyed in the boom years. The worst affected countries include Ireland and Spain, where a collapse in construction has swollen the dole queues.
Youth unemployment is especially high in Spain, prompting protests. Britain has fared better because its tight planning laws limited the growth of its construction sector during the global housing boom. But sluggish growth and the prospect of renewed recession mean that joblessness is rising again in Britain as well as in Germany.
Nonetheless, it is apparent that the world cannot continue to witness a parade of inert events. Governments and peoples must unite to seek common solutions because recession is contagious and has the bad habit of overtaying.
