The euro zone’s central problems continue to worry the markets. Greece had both a debt-to-GDP and a deficit-to-GDP ratio that were too high. But, as Table 1 shows, Spain’s deficit is quite large; and, as Table 2 demonstrates, Italy’s debt is considerably above the Euro zone average.
The zone’s economies are now definitely in a double-dip recession, as Table 3 shows. As is visible in Table 4, unemployment has stayed high across much of Europe, and has risen steadily in some countries. In some others, particularly Spain, youth unemployment has, in particular, exploded in magnitude, as Table 5 shows. Yet, with high debt and deficit ratios, a diet of austerity is being prescribed; the enormous unemployment makes that extremely politically unpalatable.(Click here for tables)
Northern Europe cannot afford a disorderly collapse in Greece. As Table 6 shows, French, German and British banks own the vast majority of Greek debt. Clearly, those who recklessly lent to Greece will be forced to take a haircut, but a complete loss in value could paralyse the Northern European economy. Yet, claims on Greece are dwarfed by claims on the Spanish banking system, outlined in Table 7. These, too, are overwhelmingly owned by Northern European banks. A sudden loss of trust in the Spanish banking system or its sovereign supporter, the Spanish government, could cause an unstoppable contagion across Northern Europe. Thus, the zone has ample reason to ensure neither Greece nor Spain collapses.