How probable is a domino collapse in the world economy?
The first signs of contagion of the Greek debt crisis throughout the Eurozone made their appearance at the end of June. There had intervened the celebrations for the conclusion, on July 21, of the agreement with the E.U. to support Greece and the temporary calming down of the markets, after which Italian and Spanish bond yields rallied anew, rekindling fears of contagion to the hard core of the Eurozone.
On the other side of the Atlantic, the U.S. Government dodged, in the nick of time, an eventual cessation of payments by finally voting for the bill to increase the debt limits to a level comparable to those of the economic situation after the 2nd World War. The solution adopted, however, which imposes huge cuts of 1 trillion dollars in the next ten years, is qualified by most analysts as temporary.
The high debt problem is global and the state of globalized economy extremely fragile. As can be seen from the interactive graphic featuring data from the Bank for International Settlements, 34 countries around the world owe each other trillions of euros. The slightest incident is capable of causing a worldwide ‘domino’. A potential payment default, either by the weakest link or by a juggernaut of the world economy will cause a chain reaction in Europe, America and Asia with unforeseeable consequences.