The volcano of debt that has darkened Europe's skies this week has buried memories of the volcanic ash cloud that spread over the continent last week. The sovereign debt downgrades of Greece and Portugal on Tuesday shook the markets and caused experts such as Prof. Nouriel Roubini to predict the end of the eurozone within a short time, even sooner than he had earlier predicted.
As with the volcanic ash cloud from far-off Iceland, which eventually shut down Europe's air traffic, investors yesterday faced another downgrade, this time from Spain. It's hard to blame the markets for panicking; after all, even German Chancellor Angela Merkel was forced out of her indifference about Greece's distress and declare, "The Euro bloc is in danger," and suddenly demanded urgency in formulating a Greek aid package.
In contrast to the volcanic ash cloud, which dispersed after a few days, the cloud from Greece is not expected to disappear from sight. The markets waited for Germany, without which there would be no help, but Merkel preferred to conform to domestic public opinion. The time that passed only brought the Greek cloud to the edge of Berlin: It might be possible to throw Greece out of the eurozone, but can the same be done to Portugal and Spain as well?
Merkel's delay has already cost her dearly. If a week ago, the aid package was estimated at €45 billion, a figure that caused Merkel to demand that Greece make more budget cuts, that figure has now ballooned to €100-120 billion through the end of 2012.
The eurozone powers, France and Germany, now have to strongly hope that this is the final price of the rescue. Based on the markets' reaction, investors' confidence in bonds of European companies is falling. The volcanic cloud over the markets could take with it the united currency and leave all of Europe's economy grounded.
Published by Globes [online], Israel business news - www.globes-online.com - on April 29, 2010
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