Sunday, April 17, 2011

Euro Zone Breaking Point

Most of the West has been fluctuating between signs of economic green shoots and the threat of impending disaster over the last few months - the situation is fragile. This is nowhere more so the case than in the Euro Zone.

The current global economic instability is best reflected in the gold price - cautious investors tend to dump their funds into precious metals like gold and silver when they feel that speculating on stock markets is far too risky. With the recent downgrade of Irish debt to one level above junk by Moody's it will be interesting to see how the economic powerhouses of Europe react.

In effect, Ireland has already started to write down its debt. What will the effect of these sovereign debt write downs be other than it being tantamount to localised inflation? Clearly the European Central Bank sees country default by any or all of Ireland, Greece and Portugal as less catastrophic than inflation - visible through their actions by allowing an interest rate increase.

This may be still manageable from the Euro Zone point of view as a whole but for the individual countries in question the damage to their reputation as well as to the external creditors may have many unforeseen knock-on effects. Will the banking systems in these countries, for example, be able to sustain the losses they incur because of it? The answer lies in how punitive the bailout terms are for these countries - no matter what though, the situation is not looking good.

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Given the relentless growth rate in India and China, at this point, it may well be wiser to try your luck with online casinos in India than taking punts on the Germany and France surviving the current raft of economic issues unscathed. I am not optimistic.