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Debt crisis: The ripple effect Add to ...

From sagging copper prices to budget austerity in Britain, the effects of the debt crisis are rippling through markets and countries.

Commodities

If there are any winners throughout Europe's crisis, it's gold bugs. Gold prices hit another record Tuesday as investors sought a haven from financial turmoil in the region. It's a different story for other commodities: Copper has tumbled about 17 per cent this year on concerns about a faltering global economy. Oil prices have shed 18 per cent since early May.

Spread of debt woes

Fears about individual economies began with doubts about Dubai's sovereign debt. Greece was next, as fears grew that the country wouldn't be able to repay its burgeoning debt. Worries have spread to the solvency of Spain's banks and over to Britain, which is under intense pressure to quickly publish a deficit reduction plan.

Economic impact

Europe's crisis has led to mounting fears that global growth will slow as it shakes off the effects of the recession. Bank of Canada Governor Mark Carney says the impact so far is modest but he's watching closely. On Tuesday, the People's Bank of China said it is concerned that governments cutting back on stimulus spending will affect China's economic growth.

Currencies

The turmoil has created huge volatility in currency markets. The euro has plunged 16 per cent against the U.S. dollar this year. The Canadian dollar has gained 11.4 per cent this year against its developed-world counterparts, according to Bloomberg's correlation-weighted indexes.

Credit ratings

Fitch Ratings has warned Britain that the country's triple-A rating is on shaky ground, stressing the need for ambitious cuts in its emergency budget, due June 22. Standard & Poor's has downgraded Greece's ratings. Unease about Europe strengthened the demand for U.S. Treasury bonds issued Tuesday.

Stocks and investments

Fear about European instability has led to bumpy markets. The FTSE is down more than 7 per cent this year, and the Dow has fallen nearly 5 per cent since January. Indexes in both Britain and Germany fell about 1 and 0.9 per cent, respectively, Tuesday on growing fears of labour strife. Spain's benchmark index has fallen 17 per cent since the beginning of May.

Fiscal measures

Governments are slashing budgets across the board in attempts to reduce deficits. Greek austerity measures have included a freezing of public sector wages until 2014, along with significant cuts in bonuses and allowances. Germany has sliced €86-billion ($107-billion) from government spending, and British Prime Minister David Cameron has threatened "painful" cuts to tackle a national debt of £770-billion ($1.2-trillion). The Hungarian Prime Minister has proposed an overhaul of the tax system and cuts to public sector wages.

Social unrest

Workers across Europe have begun to threaten collective action. Greek tourism workers have threatened strikes this month, continuing months of protests. One protest in May, which drew more than 50,000 demonstrators, led to three deaths. Three-quarters of Spain's public sector workers took part in a work stoppage Tuesday, and unions are threatening general strikes. Romanian trade unions have planned strikes for June 15, when the parliament plans to vote on austerity measures. British, Danish and German unions have also threatened to walk off the job.

 

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