Boy those PIIGS are hungry

No, I’m not suffering a spelling impairment or spellcheck #FAIL.

PIIGS, in this instance, stands for Portugal, Italy, Ireland and Greece, and they’re the reason that the Eurozone could collapse upon itself, ushering in a second great economic collapse when the global economy is struggling to regain its feet.

In January I attended two meetings discussing this, one put on by the Madison International Trade Association and the second by the German American Chamber of Commerce. Both had people far smarter than I speaking, including Diane Swonk of Meisrow Financial, a really well-recognized and spoken individual on topics such as this. (The GACCoM one was recorded and archived and can be seen on their site if you just register. Pretty sure it’s free.)

A combination of factors contribute towards making this a dicey proposition for improvement. The first is the fact that unlike the USA which has both a political and monetary union (think fifty states, one currency), Europe has no political union, only a monetary one. So the European Central Bank, unlike the Federal Reserve Bank, does not have the same tools at their disposal to deal with. Plus, you have individual, national economies, some of which are independently stronger than others.

The first financial failure was because of the banks, the second could come at the hands of governments. The European crisis is entirely a sovereign debt crisis.

Ask two economists for the time and you get three different answers; that’s how they roll. What all agree upon is that the Euro must be rescued at all costs. To do that will require tremendous austerity measures to which there are no alternatives. However, for governments to regain confidence, they have to spend money. See the conundrum?

The greatest risk to the survival of the Eurozone would be a downgrading of the strongest members, starting with Germany. During a roundtable discussion, one panelist felt there was a 30% chance that Greece could leave the Eurozone altogether.

Total exposure to Europe’s financial woes for Americans? An estimated $2 trillion on bank paper alone that is known. That doesn’t count the Chinese who have been buying their paper as well.