Getting rid of Europe's sovereign debt crisis -- like squashing the pesky mosquito buzzing around us at the barbecue -- is easier said than done. That raises the perplexing $64,000 question: After a horrendous May -- which saw the major averages tumble, largely attributable to the Eurozone's debt woes -- when will this crisis stop bombing the U.S. stock market?
The sad answer: not anytime soon, a number of market pros say. In fact, some look for Greece's financial crisis to soon be followed by similar events in such countries as Spain, Portugal and Italy, which several believe could lead to a collapse of the faltering Euro, perhaps even a breakup of the European Union, and, in any event, continue to inflict damage on the U.S. stock market.
Indicative of further distress, the rating service, Fitch, downgraded Spain's credit rating for the second time last Friday, causing the Dow to sink 122 points.
Most of the European-related stock losses are ascribed to mounting fears that Europe's ongoing debt difficulties will slow the global economy and take a bite out of U.S. growth, maybe even spur a double-dip recession here.
Especially noteworthy is a growing belief that last month's $1 trillion rescue package from the European Union to bail out Greece and prevent the debt crisis from spreading is no panacea. "That $1 trillion is equivalent to British Petroleum's efforts to stop the oil spill," quipped Hong Kong trader Selwyn Ortz. "They're both for the birds."
On the other hand, some other pros believe the debt crisis of the Eurozone countries is way overblown by investors, that wiser heads have come to grips with the problem and the need for firm action and that the $1 trillion rescue package recently concocted by the European Union's finance ministers could go a long way in putting the Eurozone's difficulties to bed.
"That's BS," says Ortz. "Just look at the numbers, the debt, the excessive deficits and the poor economic prospects of the weaker European nations and there is no way any thinking person can believe the European difficulties are behind us." Ortz is also convinced that the proposed cutbacks by the EU to some countries as a means of getting their fiscal houses in order could sink some European economies, as well as produce the kind of street riots we saw in Greece.
Bryan Rich, editor of the World Currency Alert, a newsletter out of Jupiter, Fla. that tracks the world currencies, sees the efforts to get the financially strapped European nations solvent again as an exercise in futility. Despite the $1 trillion bailout package, he says, "it's an unsolvable, structured problem that cannot be fixed unless countries are willing to give away their sovereignty and let other countries manage their monetary policy." A Greek default, he contends, is only a matter of time unless they can do something to curtail a massive budget deficit.
Rich also sees parity between the Euro and the U.S. dollar only a matter of time. At present, the Euro is equivalent to about $1.23 for each greenback. In six months, he figures the Euro will drop to a $1.12 equivalency even though the European Central Bank may intervene by buying the Euro on the way down.
Rich ciped some figures/from the Organization of Economic Co-operation and Development) OECD), which he contends give credence to ongoing grief for the PIIGS nations (Portugal, Italy, Ireland, Greece and Spain) and why their problems could grow progressively worse, in the process putting additional pressure on the stock market.
First to the OECD's abysmal GDP forecasts for 2010: Portugal, 1% growth; Italy, 1.5% growth; Ireland, 0.07% decline; Greece, a retreat of 3.7%, and Spain, 0.02%.
Next, the OECD's projected 2010 unemployment rates: Portugal, 10.6%; Italy, 8.7%; Ireland, 13.7%; Greece, 12.1%, and Spain, 19.1%.
Rich also takes note of the PIGGS' debt as a percentage of GDP, which, according to Eurozone rules, is not supposed to exceed 60%. The specific numbers: Portugal, 77%; Italy, 115%; Ireland, 65%; Greece, 113%, and Spain, 53%.
His ominous conclusion: Europe's woes are bound to worsen.
Investment adviser Harry Dent, Jr. of the HS Dent Forecast newsletter in Tampa, Fla. argues that the $1 trillion bailout program was done clearly to protect the British, French and German banks, which, respectively hold PIGGS'debt of $393 billion, $911 billion and $704 billion, or a total of $2.018 trillion
Like the U.S. bailouts, he notes, it simply pushes the debt crisis down the road a bit. But in this case, he says, austerity measures are required, which will only worsen an already failing economy. Hence, he concludes, it is very likely that this crisis will return in months, not years.
Meanwhile, there is another frightening prospect to worry about -- the mounting belief that the financial woes of the PIIGS may well spread to the U.S., the U.K. and Japan.
If that indeed occurs, all hell will break lose.
What do you think? E-mail me at Dandordan@aol.com
The Morning Email helps you start your workday with everything you need to know: breaking news, entertainment and a dash of fun. Learn more