It’s been awhile since I’ve written about Europe... Today financial markets around the world are down significantly after Moody’s downgraded the credit rating of Spain.
- The impact of downgrading a country’s credit rating is akin to your credit score being lowered. The lower your credit score is the more costly and difficult it is for you to borrow money from others.
The downgrade of Spain’s credit rating is a reminder to people that Europe’s sovereign debt crisis is not over even though coverage of the crisis has waned with the recent instability in the Mideast and North Africa.
Some people are beginning to worry that the recent events in the Middle East and North Africa may soon have an impact on the sovereign debt crisis in Europe. Today I want to discuss how one event could eventually impact the other.
As a reminder, the sovereign debt crisis in Europe is important to monitor for these reasons:
1.Europe’s problems can be a significant source of global economic and financial instability as demonstrated by the extreme financial volatility last spring when images of riots in Athens were shown around the world.
2. Europe’s problems could be a catalyst that transforms the European Union (E.U.) into an entity that more resembles the entity that it may be in the End Times. For instance, one potential outcome of the crisis is that European leaders agree to create fiscal union so they can better deal with E.U. member countries’ debt problems (fiscal union would be one step before political union). Another possibility is that some heavily-indebted countries (like Greece) could leave the E.U. so they can deal with their problems on their own.
3. Europe’s problems could be a catalyst that helps bring an era of global currency devaluation (which is an event that is predicted by the spiritual forces of evil and is an event that is biblically possible) if the European Central Bank (ECB) is forced to engage in a massive money printing campaign to bring relief to heavily-indebted European countries.
Some are concerned that the political instability in the Middle East and North Africa could trigger a new period of major instability in Europe.
- The recent, significant increase in oil prices resulting from the political instability in the Middle East and North Africa has the ECB concerned about inflation. In fact, Jean-Claude Trichet, the head of the ECB, recently hinted that the ECB may begin to raise interest rates in Europe as early as next month, which came as a surprise to many experts.
- Some experts are worried that raising interest rates in Europe soon could cause significant problems for heavily-indebted European countries like Spain whose economies are vulnerable to higher interest rates. The economies of heavily-indebted European countries like Spain are already very fragile, so the concern is that higher interest rates could worsen the situation in these countries to the extent that more bailouts and rescues are needed.
We’ll see what happens in the coming weeks and months…
Right now people’s attention should be focused on the political instability in North Africa and the Middle East. However, people should also be aware that the political instability in North Africa and the Middle East can potentially lead to new or renewed problems elsewhere in the world.
- The potential for renewed problems in Europe if the ECB indeed raises interest rates soon to combat the inflationary effects of higher oil prices is one such example
