The global economy has essentially been on life support since the crash of 2008. Vital signs have become fairly stable and there have been occasional flickers on the EEG, but the only country that appears to having anything that would pass for a sustained recovery is China. It now appears that the lights are flickering in the ICU and the power is in danger of a blackout.
Greek Debt Woes Ripple Outward, From Asia to U.S.
The fear that began in Athens, raced through Europe, and finally shook the stock market in the United States is now affecting the broader global economy, from the ability of Asian corporations to raise money to the outlook for money-market funds where American savers park their cash.
What was once a local worry about the debt burden of one of Europe’s smallest economies has quickly gone global. Already, jittery investors have forced Brazil to scale back bond sales as interest rates soared and caused currencies in Asia like the Korean won to weaken. Ten companies around the world that had planned to issue stock delayed their offerings, the most in a single week since October 2008.
The increased global anxiety threatens to slow the recovery in the United States, where job growth has finally picked up after the deepest recession since the Great Depression. It could also inhibit consumer spending as stock portfolios shrink and loans are harder to come by.
I have written several diaries about the way in which the pressures of the recession are bringing the structural flaws of the European Monetary Union into bold focus. The pressures on bond yields have been spreading from Greece which has been in the headlines, to neighboring countries.
Now the UK finds itself in a state of political limbo. The state of the country's shaky finances was one of the major issues in the inconclusive election. Britain has a debt to GDP ratio almost equal to that of Greece. Now they have no party with the power to govern. Even if some coalition is cobbled together, it is not expected to be stable. This situation is placing great pressure on its bond yields.
The leaders of the EU are huddled in marathon meetings over the weekend in an effort to craft some arrangements that will quiet the markets on Monday morning. The fact that key leaders such as Merkel and Sarkozy (I prefer Snarkozy) are putting great effort into trying to paint a picture of the forces of virtue and valor in a battle to the death with evil speculators gives one a feeling that it will likely be more noise than substance.
The New York Stock Exchange has been in decline all week. Nobody yet has figured out what the big plunge on Thursday was really about. Even without that, it is definitely not a possitive picture.
One thing was very clear during the crash of 2008. The economies of the world have become fully globalized and intertwined. A crisis in one place can and likely will cause immediate impacts everywhere else. Something like that seems to be happening in the present situation. The Euro Zone problems, the UK elections, the oil leek in the gulf are all things that would likely create some real problems in the country where they are happening. However, they are all happening at the same time in a world economy that is still very shaky on its feet.
It's an upheaval. Will it turn into a really major upheaval? It's too soon to tell. However, it is enough to make a lot of people nervous. Monday morning should be interesting.