11 May 2010

Special Coverage: Web of Europe’s Crisis

$1 trillion rescue package by European Union.
Global share markets reacting positively towards EU latest move.
Euro gains 2.7% in one day boosted by EU and IMF.
European markets posted best one day gain this year.

Sounds GOOD?

This is the power of UNITY showed by EU countries during this round of financial meltdown. After a frantic talk on Monday, European officials agreed the 16 euro nations would put up $572 billion in new loans and $78 billion under an existing lending program. Meanwhile, IMF will pump in another $325 billion, adding up to a rescue package of nearly $1 trillion.

However, many economists and analysts are still concern as to how the money would be dispensed and on what terms. A lot of them citing the euro rescue won’t solve the main problems plaguing the economies of Greece, Spain, Portugal, Ireland and Italy, which is low growth and weak balance sheets.

Let’s enlarge the chart below (you must) to have a clear picture of the debt-ridden countries, taken from www.nytimes.com


Now, you still believe that EU nations are really so UNITED?

The reality is that the Germans, French and the rest of Europe have little choice, but to bail out the troubled members to prevent them from failing. With cross-border banking and borrowing, many countries on the periphery of Europe owe vast sums to one another, as well as to richer neighbors like Germany and France. A default by a single nation would send other countries tumbling.

Who is the “Tai-Ko” (number 1)?
Congratulations to GREECE, who owes:
  • $9.7 billion to Portugal
  • $8.5 billion to Ireland
  • $6.9 billion to Italy
Second layer of Debt:
Portugal owes $86 billion to Spain.
Nearly 1/3 of Portugal’s debt is held by Spain.
With unemployment at 20%, Spain is among the weakest economy in Europe.
And, Spain owes:
  • $31 billion to Italy
  • $30 billion to Ireland
  • $28 billion to Portugal
Third layer of Debt:
Collectively, these PIIGS owes:
  • $704 billion to Germany
  • $911 billion to France
  • $418 billion to Britain (Here’s how Britain also came into picture)
Interestingly, Italy owes France $511 billion, or 20% of French GDP!!!
Now, I am not surprise that “French fries Italy’s Pizza”…

Conclusion: German and France are FORCED to bail out PIIGS.

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