Receding financial tide exposes nations swimming naked

London : The crisis in euroland could not come at worse time for the global economy as governments seek to shrug off recession and restore calm to the international financial system.

A meltdown which began in Greece is now engulfing the other ‘Club Med' nations led by Portugal, Spain and even Italy.

Investors are dumping bonds issued by their governments, banks and companies.

The global recession exposed the deep fractures in euroland between "the haves", the relatively strong economies of Germany, France, Benelux and Scandinavia and the "have nots" in southern Europe and Ireland.

In the good times the seriously troubled economies enjoyed enormous prosperity, fuelled by low interest rates, easy credit conditions and large-scale assistance from the richer nations.

But as the legendary American investor Warren Buffett has sagely remarked: "It's only when the tide goes out that you discover who has been swimming naked."

In other words it is only in bad times that excessive and foolish behaviour by banks, businesses and governments is found out.

The present onslaught has been made even worse by the decision of the European Central Bank, which runs interest rates and monetary policy across the euro area, to withdraw the assistance it has been providing to the weaker economies by buying low-grade bonds.

The euroland economies in dire straits are:

Greece: The country's debt has reached a staggering 110 per cent of gross domestic product and it has a budget deficit of 13 per cent.

Last week the government promised to bring the deficit down but the markets are unconvinced that the economic projections it is making can be achieved. The cost of insuring its debts on financial markets has soared over the last week as confidence has drained away. The budget deficit in the current financial year is heading for 11.4 per cent of national output and overall debt stands at 60 per cent of gross domestic product.

Italy has an appalling amount of legacy debt which is projected to rise to 120 per cent of output in 2010 and 128.5 per cent in 2011.

The government of debt-ridden Ireland earned praise in December for taking an axe to the public sector, cutting the earnings of those on the nation's payroll by up to 20 per cent. But borrowing is still far from under control.

— Daily Mail