Warnings Grow of Looming Debt Crisis; Eurozone Fakers Say QE Will Save Them

There are growing fears of a new debt crisis, the Guardian reported this weekend, enunciated by, among others, British author and Glass-Steagall proponent Ann Pettifor of Prime Economics, who underscores that nothing has been done since the 2008 crash, particularly on the issue of helping nations that can’t repay their debts. “We’re going to have another financial crisis. We’re back to where we were, and that for me is really frightening,” she says.

The Guardian cites others who warn that the global community hasn’t really learned the lessons of the Greek debt crisis, “or even of Argentina’s default in 2001.” Industrialized nations oppose attempts to deal with the issue of sovereign debt restructuring in any venue, such as last year’s proposal in the UN General Assembly to debate creating a global mechanism to regulate sovereign debt restructuring. While debate on these proposals goes nowhere, developing nations have meanwhile piled up billions in new debt, thanks to low rates and QE’s “cheap money.”

On top of Brazil’s problems with a strengthening dollar, Turkey, Chile, and Malaysia have large dollar-denominated debts and sliding currencies; several African countries have big debt repayments coming up, and Ghana and Zambia have to go to the IMF. Pettifor warns: “it’s as if absolutely nothing has changed since the [2008] crisis.”

In Europe, recognition that Greece cannot pay its debt and may be forced to exit the Eurozone has provoked panic. Yet, according to Sunday’s Financial Times, some among the more delusional are comforting themselves with the argument that the European Central Bank’s (ECB) Quantitative Easing (QE) program (60 billion euros/month) would contain the consequences of a “Grexit” from the eurozone, harming Greece, “but not the wider region,” according to UniCredit chief economist Erik Nielsen.

Yes, there would be negative consequences should Greece leave, Nielsen adds, but “it’s all manageable. Nobody in their right mind would start shortening other peripheral debts to any significant extent as long as we have QE.” Others are less sanguine. Barclays chief Europe economist Phillippe Guidin de Vallerin worries that “for the moment, everything is being artificially hidden by the QE.” He’s also nervous about the message going out that membership in the eurozone “is not irreversible… It would show that you can get out if you want. The next time growth slows and markets realize how high debt levels are in Europe, investors will ask: which country will leave the eurozone next?”