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Trade with Greece
34
Is the debt crisis behind us? One thing for certain:
Europe is at the epicenter of the worst crisis in
history. How can a country reduce its debt, or
make it sustainable? When GDP is growing faster
than debt, there is no problem. If this is not the
case, then the debt must be somehow reduced
(haircut). How can Spain and Portugal, or any
country, for that matter, reduce their debt, with
soaring unemployment and a ballooning deficit?
As pointed out above, the completion of the PSI
scheme has given markets some breathing
space. Actually, the markets had already been
given some respite much earlier, when the ECB
launched its first three-year long-term refinancing
operation (LTRO), and then again when the sec-
ond LTRO was announced. These two packages
amounted to a total of 1 trillion euros, albeit
European bank deposits with the ECB exceeded
700 billion euros, in other words all liquidity was
returned to the central bank.
Stock market indices in America are trading at
very high levels, refusing to correct. The markets
are signaling the end of the crisis. In mid-2007
they indicated that the global economy was mov-
ing into a new era, overlooking the fact that
growth had slowed down and the US housing
bubble had burst.
If Greece has settled its debt, then Europe, and
other world powers, should follow suit. Europe's
total debt is equal to 443% of its GDP; this figure
stands at 350% in the US (instead of slightly