The debt default worries of the PIIGS European economies (Portugal, Ireland, Italy, Greece, Spain) look increasingly to be disregarded by the markets after the worries of last week. In order to safeguard the integrity of the Euro, there is significant political pressure for the more economically strong countries such as Germany to step in to the weaker economies such as Greece. However for politicians like Angela Merkel to sell any bail outs to their electorates is a difficult task. Greece and the other PIIGS countries are seen by French and German voters as having brought their problems on themselves through bloated state pension schemes, poor tax collection, excessive spending and an inability for politicians to tackle powerful unions.
For the Euro to collapse would be embarassing for European leaders and therefore it is unlikely to happen. But the scale of debt rollovers is so large that it may become a huge issue as international bond investors refuse to take on the risk especialy if PIIG polititicians won't take the difficult decisions and cut their budget deficits or raise taxes. Either route may mean that these politicians are voted out of office at the next national election. So these countries are stuck between a rock and a hard place! Without the flexibility to devalue their currencies, which countries like Greece used before the Euro, things are looking bleak for these heavily indebted economies. Suddenly the U.K.'s decision to keep the pound looks good for the British economy especially with the debt being racked up in the recession. Overall I fear that the glut of debt in Europe and the U.S. will come back to haunt the stock markets of the world in late 2010 and 2011, especially when stimulus spending comes to an end in the United States.
