Is it certain that the nations of the European Union are heading for a hard fall? It certainly looks that way. When the overspending of governments such as Greece, Portugal, and Ireland were involved, the threat to the euro was real, but it could be psychologically contained (an important factor in maintaining the stability of financial institutions). Those three nations, after all, are small. Spain, the fourth member of the “PIGS,” was more than half the size of the Italian economy, but much of the industrialized West has viewed Mediterranean nations as inherently volatile.
Two months ago, however, Italy — one of the largest economies in the world — had its sovereign debt downgraded by Standard & Poor’s and then by Moody’s, which reduced the bond rating for Italian government bonds by three notches. The GDP of those five nations — Portugal, Ireland, Italy, Greece, and Spain — equal about $3.7 trillion, or more than 20 percent of the economy of the European Union.
The latest news is that France could have its AAA credit rating downgraded before Christmas. Standard & Poor’s is expected to make that decision imminently.
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