Financial Problems in Europe
The economies of Europe's PIIGS - Portugal, Italy, Ireland, Greece, and Spain - are looking shaky. MoneyWatch's editors discuss the potential ripple effect these countries could have here in the U.S.
Jill Schlesinger: I’m Jill Schlesinger, Editor-At-Large
Jack Otter: And I’m Jack Otter, Executive Editor.
Jill Schlesinger: In today’s Reality Check, why are the PIIGS of Europe causing
such a stink?
Jack, we got Portugal, Italy, Ireland, Greece and Spain. They’re
being called the PIIGS of Europe, why?
Jack Otter: It’s not a nice name, I’d much rather be a brick than a pig.
Jill Schlesinger: Yes, indeed.
Jack Otter: They’re being called this because their financial situation makes us
look like Goldman Sachs. Spain, 19% unemployment, Greece
apparently, the estimates of its debt are 875% of the country’s
Jill Schlesinger: Oh my gosh!
Jack Otter: And so in America, we might think hey, it’s Greece. It’s far away.
What’s the problem? It’s a small economy. But who may thought
that in the late 90’s when Thailand had a currency problem and the
Dow dropped I think, 550 points in one day and the entire global
economy really stalled because of a problem that started in Asia. I
think now in New Europe if you will, we could say the same thing.
Jill Schlesinger: And the real fear is that people think okay, let’s say Greece were at
the default on its obligations. Then it causes a ripple effect and
people say to me, oh so how bad could that be? And I say well
remember when we didn’t think the Lehman Brothers, and ripple
effect wasn’t going to be big, that’s what people are worried about.
But this week, the European Union is going to meet and do you
think they’re going to bail these guys out? What’s going to happen
Jack Otter: If I had to bet, I would say they probably will bail them out. And
it’s a big problem, the European Union is kind of a union because
they share the same currency but the economies are vastly
different. I mean back when Italy had a Lira and has branded
economic problems which it frequently did, it could just devalue
the Lira, sells them out for a mail as cheap and the economy would
come back. Now it’s all the Euro and so they don’t have that
currency option and there are lots of problems and remember.
Jill Schlesinger: And Germany and France who have stronger economies aren’t
really very excited about bailing out their brothers and sisters to
the south, right?
Jack Otter: Especially now, because the entire global economy is so weak and
I think that’s the real problem here. You know, in the Asian flu
that was the late 90’s that the global economy was booming. Now,
we’re all tottering. I mean these three legged stools are on two
legs, if Greece cuts the other one out, I would be worried.
Jill Schlesinger: So, do you think investors should do anything right now or do you
think it is going to blow up and the stench is going to pass and
we’re going to be okay, you think?
Jack Otter: Well for anybody who didn’t notice, last year, the year before, it’s
time to really be conservative to figure out as we always say what
you’re going to do when your investment accounts for the worst
case scenario. What happens if Greece defaults and the market
correct 20% in the next 2 months; are you prepared for that? If you
are, great. If you’re not, get conservative now.
Jill Schlesinger: Okay, so we’re going to watch the stench from Europe. We’re
going to make sure you check in to your portfolio and reallocate
and most importantly remember that these things are going to
continue to happen, especially this is a fragile recovery as you said
so, it is okay for investors to be a little bit more defensive right
now and be prepared for perhaps any outcome. So, that’s really the
most important thing here, is that right?
Jack Otter: Absolutely and I would give one more bit of advice and here is my
old thing, I think emerging markets over the long term are a great
opportunity. They ran up so quickly over the past 6 or 8 months, if
something bad happens in Greece, maybe they’ll really correct and
that could be a great entry point for long term investors.
Jill Schlesinger: So that stench might be an opportunity and that’s your Reality
Financial Problems in Europe
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