Monday, March 21, 2011

Another European Crisis Looming? - Newsweek

While the world has been transfixed with Japan, Europe has been struggling to avoid another financia crisis. On any Richter scale of economic threats, this may ultimately count more than Japan’s grim tragedy. One reason is size. Europe represents about 20 percent of the world economy; Japan’s share is about 6 percent. Another is that Japan may recover faster than is now imagined; that happened after the 1995 Kobe earthquake. But it’s hard to discuss the “world economic crisis” in the past tense as long as Europe’s debt problem festers—and it does.
Banks could suffer huge losses on their bond portfolios; investors could panic and dump all European bonds; Europe and the world could relapse into recession.
Unfortunately, the odds of success are no better than 50–50

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