It’s Not Just the “Peripheral” European Countries … Financial Contagion Could Spread to “Core” Eurozone Countries and the U.S.

Sunday, November 28, 2010
By Paul Martin

Washington’s Blog
Nov 28, 2010

It’s not just the “peripheral” European countries which are in trouble.

As Ambrose Evans-Pritchard reported yesterday:

The escalating debt crisis on the eurozone periphery is starting to contaminate the creditworthiness of Germany and the core states of monetary union.

Credit default swaps (CDS) measuring risk on German, French and Dutch bonds have surged over recent days, rising significantly above the levels of non-EMU states in Scandinavia.

“Germany cannot keep paying for bail-outs without going bankrupt itself,” said Professor Wilhelm Hankel, of Frankfurt University. “This is frightening people. You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders. People have terrible memories of 1948 and 1923 when they lost their savings.”

The refrain was picked up this week by German finance minister Wolfgang Schäuble. “We’re not swimming in money, we’re drowning in debts,” he told the Bundestag.

While Germany’s public and private debt is not extreme, it is very high for a country on the cusp of an acute ageing crisis. Adjusted for demographics, Germany is already one of the most indebted nations in the world.

(While future demographic trends for the U.S. are not good, for example, Germany’s population is even older.)

As I wrote in May:

As the following Reuters chart shows (based on information provided by BIS), France and Germany are the largest holder of Greek debt:

The Rest…HERE

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