The European debt crisis isn’t going away. One of the euro zone’s smallest countries provided the latest evidence of that.
Cyprus announced that things are so dire that they will need to start taxing bank depositors to help fund a $13 billion bailout from the European Commission, European Central Bank and International Monetary Fund. They’re the first country to impose such a tax since the European debt crisis began – a window into just how screwed up the euro zone remains.
Here’s a tale of the tape of some of Europe’s most debt-plagued countries (data courtesy of the New York Times):
Debt/GDP ratio: 144%
Unemployment (as of September 2012): 25%
The latest: Europe’s most indebted country saw its industrial output decline the most in four months in February.
Debt/GDP ratio: 126%
The latest: Political uncertainty. Italy is considering holding new elections after failing to form a government during its most recent vote. Two thirds of investors polled by Reuters called a return to the polls a “worst-case scenario” that could further postpone reform.
Debt/GDP ratio: 117.5%
The latest: Finally, some good news – Standard & Poor’s upgraded Portugal’s sovereign ratings to stable from negative. As a result, euro zone finance ministers are giving the country more time to pay back some of its loans.
Debt/GDP ratio: 91%
The latest: President Francois Hollande recently backtracked on his vow to reduce the country’s budget deficit to 3%, revising upward to 3.7% this year.
Debt/GDP ratio: 76%
The latest: One euro zone country whose debt situation is actually improving. Spain’s 2012 public sector debt rose less than forecast, with the budget deficit falling to 6.7% from 9% in 2011. Meanwhile, the yield on 10-year Spanish bonds have fallen from a euro-era high of 7.75% last July to 4.85% currently.
Europe has been largely absent from the financial headlines this year. It isn’t the driving force it was in 2011, when investors hung on the day-to-day swings in the euro zone’s debt situation. Lately, investors haven’t paid much attention to Europe – as evidenced by U.S. stocks hitting all-time highs last week.
The Cyprus situation, however, seems to be catching Wall Street’s eye today. The S&P 500 is down 0.3% as of 1 p.m. eastern time.
Can we expect Europe to have more of an influence on the market going forward as the debt crisis worsens? Stay tuned.