The Burden Of Debt

10/09/2010 at 11:25 am 2 comments

As equity markets consolidate their summer gains and the economic recovery continues to hold, now is a good time to remind ourselves of the serious problems still faced by many countries in the wake of the financial crisis.

Last week, Anglo Irish, the broken and soon to be broken up bank, announced that it needed a little more help from the Irish taxpayer to stay solvent:

Anglo Irish Bank Corp. said Aug. 31 it needs about 25 billion euros ($32.1 billion) in state funding, equivalent to about two-thirds of this year’s tax revenue. Standard & Poor’s, which last week cut the country’s credit rating to AA‑, said the state may have to inject as much as 35 billion euros.

The Irish finance minister has even gone on the record to say that the latest bailout bill won’t bankrupt the country. Of course, the very fact that such an assurance is necessary makes it less than entirely reassuring.

Meanwhile, over in Spain, where unemployment of 20% is even higher than it is in Ireland (14%), trade unions are planning a general strike for the end of this month to protest the enactment of labour market reforms. Said one union leader, the appropriately surnamed Ignacio Fernandez Toxo, at a rally in Madrid yesterday: “Now more than ever, a general strike makes sense.”

In Greece, the pained reaction to austerity measures continued with a transport workers’ strike on Wednesday. Further protests and more strikes are expected in the days ahead.

It would be too glib to dismiss this as isolated squealing from the PIGS. This week’s transport strikes here and in France could well foreshadow worse to come. After all, it is not just the Irish who face the prospect of having to inject more taxpayer funds into a banking system that had outgrown the national balance sheet; nor is it just the Greeks who are having to confront the problem of rising debt to avoid the nightmare of a full blown sovereign crisis.

We remain sceptical of a double dip and constructive on the economic outlook, therefore, but cautiously so. Events over the last couple of weeks should serve to remind us that along the road to recovery the world will encounter a few speed bumps – and the occasional land mine.


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Looking Ahead Hard Task


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