Here we go again — the death of another myth, namely the one that Europe’s worrisome sovereign debt crisis has run its course. Far more likely, the evidence shows, we’re in for a nasty rerun.
To put it in perspective, let’s turn the clock back about six months when the U.S. stock market was repeatedly getting battered on a daily basis in response to news of swelling debt woes in Europe. Adding to the market’s shellacking at the time were riots in Greece over proposed austerity measures.
Then came Superman to the rescue, the European Union, with a promise of a $1 trillion bailout package to stabilize Europe and drive away the bond vigilantes who were selling the debt of the weakest European countries, causing interest rates to rise. In response, the euro, aided by Chinese purchases, proceeded to strengthen, and fears of a debt crisis in Europe greatly diminished, so much so that many market pros have eliminated this risk from their radar screens.
Judging though from the recent downgrade of Ireland’s credit by the Fitch rating agency, which came on the heels of earlier downgrades of Spain’s and Portugal’s debt, it’s pretty clear that only Rip Van Winkle would dismiss the danger of a fresh outbreak of European debt problems, which has ominous implications for the world’s financial markets.
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