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There will be more defaults in the eurozone

In last week’s weekly newsletter, I explained why Spain was in big trouble. Today I want to present the full context euro zone-wide and why there will be more sovereign defaults to come in the euro zone.

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At a minimum, I don’t think a breakup would happen straight away because we are in a crisis and a breakup now would also lead to a significant economic Depression. But once the situation is stabilised, thoughts will turn to these issues. If the situation spirals down due to the debt deflationary policy response, then yes we could see more than just Greece depart. But the Europeans will do their utmost to heap as much pain on Greece as they can to make that an unpalatable path.

Conclusion: So the crisis will continue and the potential for a ‘policy mistake’ will increase the longer it does. However, given the conflicting political considerations, Europe has few choices available. For now, it will dither through, reacting as necessary at each step of the crisis until the union breaks up or heals and moves to fiscal integration. Along the way, a re-default by Greece is likely, a Portuguese default will be inevitable, an Irish default possible, and a Spanish or Italian default unthinkable.


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.