Flow data shows an abrupt withdrawal of German and Asian capital from Club Med debt markets. The EU’s refusal to offer Greece anything beyond stern words and a one-month deadline for harsher austerity Ã¢â‚¬â€œ while admirable in one sense Ã¢â‚¬â€œ is to misjudge how fast confidence is ebbing. Greece’s drama has already metastasised into a wider systemic crisis. The world risks a replay of the Lehman collapse if this runs unchecked, this time involving sovereign dominoes.
Barclays Capital says the net external liabilities of Greece are 87pc of GDP, or Ã¢â€šÂ¬208bn (Ã‚Â£182bn). Spain is worse at 91pc (Ã¢â€šÂ¬950bn), and Portugal worse yet at 108pc (Ã¢â€šÂ¬177bn); Ireland is 68pc (Ã¢â€šÂ¬123bn), Italy is 23pc, (Ã¢â€šÂ¬347bn). Add East Europe’s bubble and foreign debts top Ã¢â€šÂ¬2 trillion.
The scale matches America’s sub-prime/Alt-A adventure and assorted CDOs and SIVS of the Greenspan fling. The parallels are closer than Europe cares to admit. Just as Benelux funds and German Landesbanken bought subprime debt for high yield with AAA gloss, they bought Spanish Cedulas because these too had a safe gloss Ã¢â‚¬â€œ even though Spain’s property boom broke world records. They thought EMU had eliminated risk: it merely switched exchange risk into credit risk.
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