Ludwig von Mises Institute
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Advancing the scholarship of liberty in the tradition of the Austrian School.
Does the Greek Debt Crisis Pose a Threat to WorldEconomies?
Wednesday, May 05, 2010 byFrank Shostak On April 27 the Standard & Poor'srating agency downgraded the Greek government's debt to junk status.Greece has been graded BB+ by theS&P, official "junk" territory. It isnow on a par with Azerbaijan,Colombia, Panama, and Romania.The cost of Greek borrowing on atwo-year bond was about 1.3% lastovember. By April 27 the coststood at 19%. Many commentatorsare of the view that without outsidefinancial help the Greek governmentmay not be able to serve its debt,hich currently stands at around 280billion euros. As a percentage of GDP, the debt stood at 115% at the end of 2009. The default on the debt is likely to prevent the government from securing moremoney to support various projects, thereby paralyzing economic activity, so it is held.Many commentators are of the view that the Greek debt crisis is likely to infect various other economies, thereby setting in motion anew global financial crisis. This in turn, so it is held, poses a threat to real economic activity in the months ahead. Hence fast action,such as bailing out the Greek economy, is called for by various top experts to prevent the Greek economic virus from spreadingaround the globe. On this matter, commentators are of the view that the virus might have already infiltrated countries such as Spainand Portugal. Various experts have estimated that as a percentage of GDP the Spanish government's debt could jump to 74% in 2011from 66% in 2010 and 54% in 2009. The figures for Portugal are estimated to be 91% in 2011 against 85% in 2010 and 77% in 2009.
"Bailing out Greece is not going to reduce the threat of another economic crisis."