How will it end?

Tom McDonnell24/05/2011

Tom McDonnell: It is too early to tell but there are worrying signs that the Euro zone crisis may spread. Bond spreads for Spanish and Italian 10-year bonds have shot up in recent days. A WestLB Strategist is quoted by Reuters as saying: 'The key point is that the crisis seems to be taking hold even if peripheral countries regarded as solid'

Daniel Gros over at VOXEU has run the numbers and is arguing that it is actually foreign debt rather than public debt that is driving the solvency turmoil in the Euro zone. Meanwhile Paolo Manasse is adding to the chorus pointing out the likeihood of a Greek default.

There are three ways this can end (assuming the monetary union doesn't break up):

  1. Roll over existing debts for the forseeable future (at a more sustainable cost of borrowing)
  2. Restructure the debts, or
  3. Introduce Euro bonds

The ball is clearly in Germany's court. Eurointelligence provides a useful overview of the current thinking in that country.

Posted in: EconomicsEuropeEurope

Tagged with: eurozoneGreecedebt

Dr Tom McDonnell

McDonnell, Tom

Tom McDonnell is senior economist at the NERI and is responsible for among other things, NERI's analysis of the Republic of Ireland economy including risks, trends and forecasts. He specialises in economic growth theory, the economics of innovation, the Irish and European economies, and fiscal policy. He previously worked as an economist at TASC and before that was a lecturer in economics at NUI Galway and at DCU. He has also taught at Maynooth University.

Tom obtained his PhD in economics from NUI Galway.



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