EU debt woes will result in debt defaults, says Prof Ken Rogoff
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Friday May 07 2010
SOME peripheral eurozone economies will find it difficult to avoid large-scale defaults on their private or public external debts, or on both, said Kenneth Rogoff, a professor of economics at Harvard.
Writing in the 'Financial Times', he said not only Greece but also Spain, Portugal and Ireland have debt that's "sky high", judged by emerging market standards.
Greece is unlikely to be the last euro nation to need an IMF bailout, with Ireland, Spain and Portugal "conspicuously vulnerable", Mr Rogoff said.
The Greek crisis shows that Europe's leaders were over- hasty in admitting members that might have benefited from a much longer probation period, Mr Rogoff added.
It's an irony, he said, that one of the main motivations for creating the common currency -- namely the desire to challenge the US dollar's position as the global reserve currency -- led to lower interest rates that fuelled borrowing and helped to cause the debt crisis the European Union is struggling to cope with today.
Fiscal strains
Meanwhile, Swedish central bank First Deputy Governor Svante Oeberg said Greece isn't the only country with debt problems and there is a risk that fiscal strains in the euro region will be "more dramatic" than they now appear.
"Greece is not the only potential problem," Mr Oeberg said in a speech posted on the web site of the Stockholm-based Riksbank.
"Other countries also have major problems and in a worst-case scenario, this could develop into a debt crisis in several countries, which also affects the bank system."
The larger a country's debt is in relation to gross domestic product, the greater its interest expenditure will be and the closer "it is to an untenable situation", Mr Oeberg said.
At 14.3pc of gross domestic product, Ireland had the euro region's widest budget deficit last year. Spain had an 11.2pc shortfall and Portugal a 9.4pc deficit, according to the EU's Luxembourg-based statistics office.
Sweden has the European Union's smallest budget deficit, at 0.5pc of GDP.
Irish Independent
