Europe is fast approaching its Day of Reckoning. And, no, we're not talking about the May 21 Day of Judgment.
First, consider Greece: Its economy is hobbled, it can't meet its targets, and it says it doesn't need another bailout, which, of course, means one is coming soon, as every other policy maker in Europe seems to believe. European patience is wearing thin, and the country has been hit again by another violent strike called to protest austerity measures.
On top of that, the markets increasingly accept that the country will have to restructure its hefty debt, a nice way of saying default.
"Yesterday was a day of denial, with politicians and central bankers working hard to dispel rumours that a restructuring of any kind is possible," said Carl Weinberg, chief economist at High Frequency Economics.
"That is odd because anyone who looks at the problem as an investment banking challenge can plainly see that restructuring is inevitable."
Economist Ben May of Capital Economics noted earlier this week that at least €30-billion in government debt maturing in each of the three years up to 2015, the healthy countries of Europe won't want to continue propping up Greece indefinitely.
"As a result, we continue to think that a major debt restructuring will eventually take place, either under the European Stabilization Mechanism in 2013 or sooner," Mr. May said. "... As time goes on, we expect fears of a Greek euro exit to increase. With worries about Spain also likely to resurface, the euro zone debt crisis may be entering a new and more dangerous phase."
Then there's Portugal, and second thoughts of a bailout in Finland's new government. Finland's finance minister said today the country would support a bailout, though there are strict conditions it wants it return.
Ireland? Its minister for public expenditure, Brendan Howlin, said in a broadcast interview Wednesday that ramping up austerity measures could make matters worse.
"We have not only to cure a broken economy but we have to hold together a society," he said, according to Reuters.
Mr. Weinberg fears for the banking system in the 17-member euro monetary union. He notes that Greece's total debt, some €300-billion, accounts for something just shy of 4 per cent of total government debt in the euro zone. While that doesn't seem like much, he points out that when you add in €150-billion for Ireland and €160-billion for Portugal, suddenly you're "talking real money."
Mr. Weinberg has oft said that simply lending the basket cases more money doesn't fix anything.
On Friday, the markets will get their first estimates of economic growth in the euro zone for the first quarter, and Mr. Weinberg expects an almost flat reading overall. Germany, the powerhouse of the continent, should see 0.4-per-cent growth, he said, and France something similar.
"All of these results are subpar," he said. "This is insufficient economic growth to bring down the unemployment rates in the euro zone economists. Tight fiscal policy, constipated monetary policy -- a dearth of domestic credit to the non-bank private sector -- a jump in energy prices, flat money wages and generally declining optimistism among businesses and consumers dot the recent economic news."