Wednesday 19 October 2011

Spain's debt downgraded.

Spain has had its sovereign downgraded by two points.  See:

http://www.telegraph.co.uk/finance/financialcrisis/8835356/Moodys-downgrades-Spain-by-two-notches.html

The problem for the world, never mind the eurozone is that economies are slowing, soon will stop and then slip into recession - or even depression.   The travails in the eurozone were supposed to be resolved by a mixture of austerity, economic re-structuring and growth in economies.  The sovereign debt overhang and austerity measures combined would have made that difficult - Greece being the classic example.  Contraction of world markets has made resolution of the issues virtually impossible within the current eurozone framework. 

Even if the EFSF is expanded to 2trillion euros through leverage, whilst it might save the banking system, it will not address the underlying problems of uncompetitive economies in a world about to enter recession.  The USA economy is bumping along on the ground despite QE snd China's economy is under pressure.

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