The respite in Europe’s debt crisis “appears to have been only temporary”, says Michael Schuman on Time.com. The yield gap between safe German ten-year bonds and peripheral ten-year ones has now crept back up to near-crisis levels. The bond markets are saying that parts of southern Europe are unlikely to be able to repay their debts in full, says Wolfgang Münchau in the FT. They’ve “got this one right”.
The main worry, as usual, is Greece. It will struggle to complete its harsh austerity programme. “It is impossible to cut wages … by 30% without major riots,” says Hans-Werner Sinn of the IFO Institute. Moreover, the government’s reform programme is so “hyperambitious” that it will be “hard not to underdeliver”, adds Lex in the FT. “Good luck with taming those bolshie trade unions.” Even if Greece does pull through, it will only have stabilised debt at a colossal 150% of GDP. Making a dent in this would require a further, long-term squeeze, says Capital Economics.
Elsewhere, estimates of Ireland’s overall debt pile have been revised up beyond 100% of GDP as the cost of recapitalising the banking sector has risen. There are also worries over Portugal’s long-term solvency, given its huge private and public debt burden and lack-lustre relative growth.
The periphery would need a decade of solid growth to be sure of keeping up with its obligations, says Münchau. But countries “still recovering” from “enormous” asset-bubble implosions can’t generate that much growth. The bottom line is that a default or debt restructuring in Europe “is going to happen”. That means, at some stage, the euro crisis will return.