Wall Street Journal
June 8, 2011
Euro-zone investors may be looking for trouble in the wrong places.
Their assessment of whether indebted peripheral nations can rein in deficits largely has focused on domestic fiscal policies. But the slowing global economy may be a threat to debt dynamics in Greece, Ireland and Portugal, and will add to nerves about Spain, where activity is limp and hopes depend on exports. These countries aren't alone. Western governments generally have little scope to deal with renewed recession.
That outcome no longer looks like such a remote possibility. Global manufacturing activity has slowed to its lowest level since September 2010, driven by slower expansion in the U.S., euro zone, China, U.K. and India. Unemployment levels remain high in many countries, and high commodities prices, particularly for oil, have hurt the prospects for consumer spending in developed countries.
A cooler global economy isn't a pretty backdrop for fiscal tightening. For the euro-zone countries hardest hit by the crisis—Greece, Ireland and Portugal—it may make the fiscal journey longer and more painful, raising concerns about debt snowballing.
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