Europe’s financial contagion

wapo ^ | 12/7/10 | Neil Irwin

[Nachum]

Greece sneezed, and now most of Europe has a cold. The European debt crisis has already spread like a virus from Greece to Ireland, and other countries are now at risk: Portugal, Spain, and Italy are probable candidates for financial problems. Economists call this the “contagion effect.” How does this spread? Some of it has to do with confidence. When investors see one country encounter financial problems, they may doubt the health of other countries that seem to share economic or even political characteristics.

Contagion also has much to do with actual economic links among countries. Researchers have identified financial ties in particular as responsible for the “fast and furious” spread of crisis from one country to another. Trading activity between countries, however, can propagate economic sickness more slowly.

[FromLori]

lol more secure European countries my butt Irelands GDP was below France, Germany and the UK those so called more secure but I do note their loans to the US banks are at 52.5% topped only by the UK...

Quote...

“When an ailing country becomes over extended and unable to handle its debt, banks and other financial firms that have lent it money could be exposed to major losses. This could unsettle the home country of the banks or even spread the troubles to a third country. That can occur, for instance, because banks may try to cover their losses in one country by calling in loans in another.”

In short the greedy banks made toxic loans, i.e. liars loans all over the world and now their poor lending practices are coming home to roost.

Ireland is on the brink of insolvency too, which has helped drive down the S&P 500 stock index by nearly 4 percent over the last few days. But unlike Greece, Ireland is a relatively wealthy country, with per capita GDP of nearly $38,000. That’s 21 percent higher than per capita GDP in Greece, and in the top third for European countries. Low corporate tax rates and a skilled workforce have made Ireland a haven for some of the world’s biggest companies. And its public debt, about 65 percent of GDP, is far below Greece’s crushing load, which is 126 percent of GDP. Ireland’s debt levels are even lower than those in France, Germany and the United Kingdom.

http://finance.yahoo.com/news/Why-the-Irish-Crisis-is-Going-usnews-4028366968.html?x=0

Ireland’s Debt Servitude

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/

Ireland’s Fate Tied to Doomed Banks

http://online.wsj.com/article/SB10001424052748704506404575592360334457040.html