Greece ? Ireland ? Portugal ? Spain ? Italy ? UK ? ?

George Washington's picture

Washington’s Blog

It is now common knowledge that there is a potential domino
effect of European sovereign debt contagion in roughly the following

Greece Ireland Portugal Spain Italy UK

While some people have been writing about this for well over a year, many others have joined the party late (there are now over 600,000 hits from a Google search discussing this topic.)

It is also now common knowledge that while Greece and Ireland have relatively small economies, there will be real trouble if the Spanish domino falls.

Iceland has the world’s 112th biggest economy, Ireland the 38th, and Portugal the 36th. In contrast, Spain has the world’s 9th biggest economy, Italy the 7th and the UK the 6th. A failure by one of the latter 3 would be devastating for the world economy.

As Nouriel Roubini wrote in February:

But the real nightmare domino is Spain. Roubini refers to the Spanish debt problems as “the elephant in the room”.


“You can try to ring fence Spain. And you can essentially try to
provide financing officially to Ireland, Portugal, and Greece for
three years. Leave them out of the market. Maybe restructure their
debt down the line.”


“But if Spain falls off the cliff, there is not enough official
money in this envelope of European resources to bail out Spain. Spain
is too big to fail on one side—and also too big to be bailed out.”


With Spain, the first problem is the size of its public debt: €1
trillion. (Greece, by contrast, has €300 of public debt.) Spain also
has €1 trillion in private foreign liabilities.


And for problems of that magnitude, there simply are not enough resources—governmental or super-sovereign—to go around.

And as I've previously pointed out, Germany and France - the world's 4th and 5th largest economies - have
the greatest exposure to Portuguese and Spanish debt. For more on the
interconnections between Euro economies adding to the risk of contagion,
see this and this.

While it is tempting to assume that the Eurozone bailouts mean that
creditor nations which have managed their economies well and saved huge
amounts of excess reserves which they lend out, Sean Corrigon points out that the European bailouts are a Ponzi scheme:

Under the rules of this multi-trillion shell game, the
sovereigns guarantee the ECB which funds the banks which buy the
government debt which provides for everyone else’s guarantees.

(America is no different: Bill Gross, Nouriel Roubini, Laurence
Kotlikoff, Steve Keen, Michel Chossudovsky and the Wall Street Journal
all say
that America is running a giant Ponzi scheme as well. And both America
and Europe are trying to cover up the insolvency of their banks by
running faux stress tests.)

It didn’t have to be like this. The European nations did not have to sacrifice themselves for the sake of their big banks.

As Roubini wrote in February:

“We have decided to socialize the private losses of the banking system.




Roubini believes that further attempts at intervention have only
increased the magnitude of the problems with sovereign debt. He says,
“Now you have a bunch of super sovereigns— the IMF, the EU, the
eurozone—bailing out these sovereigns.”


Essentially, the
super-sovereigns underwrite sovereign debt—increasing the scale and
concentrating the problems.


Roubini characterizes super-sovereign intervention as merely kicking the can down the road.


He says wryly: “There’s not going to be anyone coming from Mars or the moon to bail out the IMF or the Eurozone.”


But, despite the paper shuffling of debt at the national level—and
at the level of supranational entities—reality ultimately intervenes:
“So at some point you need restructuring. At some point you need the
creditors of the banks to take a hit —otherwise you put all this
debt on the balance sheet of government. And then you break the back
of government—and then government is insolvent.”

And here’s my take from April:

As I pointed out in December 2008:

The Bank for International Settlements (BIS) is often
called the “central banks’ central bank”, as it coordinates
transactions between central banks.


BIS points out in a new report
that the bank rescue packages have transferred significant risks onto
government balance sheets, which is reflected in the corresponding
widening of sovereign credit default swaps:

The scope and magnitude of the bank rescue packages
also meant that significant risks had been transferred onto government
balance sheets. This was particularly apparent in the market for CDS
referencing sovereigns involved either in large individual bank
rescues or in broad-based support packages for the financial sector,
including the United States. While such CDS were thinly traded prior
to the announced rescue packages, spreads widened suddenly on
increased demand for credit protection, while corresponding financial
sector spreads tightened.

In other words, by assuming huge portions of the risk from banks
trading in toxic derivatives, and by spending trillions that they
don’t have, central banks have put their countries at risk from



But They Had No Choice … Did They?


But nations had no choice but to bail out their banks, did they?


Well, actually, they did.


The leading monetary economist told the Wall Street Journal that this was not a liquidity crisis, but an insolvency crisis. She said that Bernanke is fighting the last war, and is taking the wrong approach (as are other central bankers).


Nobel economist Paul Krugman and leading economist James Galbraith agree. They say that the government’s attempts to prop up the price of toxic assets no one wants is not helpful.


BIS slammed
the easy credit policy of the Fed and other central banks, the failure
to regulate the shadow banking system, “the use of gimmicks and
palliatives”, and said that anything other than (1) letting asset prices
fall to their true market value, (2) increasing savings rates, and
(3) forcing companies to write off bad debts “will only make things


Remember, America wasn’t the only country with a housing bubble. The world’s central bankers let a global housing bubble development. As I noted in December 2008:

… The bubble was not confined to the U.S.


There was a worldwide bubble in real estate.


Indeed, the Economist magazine wrote in 2005 that the worldwide boom in

residential real estate prices in this decade was “the biggest bubble in history“. The Economist noted that – at that time – the
total value of residential property in developed countries rose by
more than $30 trillion, to $70 trillion, over the past five years – an
increase equal to the combined GDPs of those nations


Housing bubbles are now bursting in China, France, Spain, Ireland, the United Kingdom, Eastern Europe, and many other regions.


And the bubble in commercial real estate is also bursting world-wide. See this.



BIS also cautioned that bailouts could harm the economy (as did the former head of the Fed’s open market operations). Indeed, the bailouts create a climate of moral hazard which encourages more risky behavior. Nobel prize winning economist George Akerlof predicted in 1993 that credit default swaps would lead to a major crash, and that future crashes were guaranteed unless
the government stopped letting big financial players loot by placing
bets they could never pay off when things started to go wrong, and by
continuing to bail out the gamblers


These truths are as applicable in Europe as in America. The
central bankers have done the wrong things. They haven’t fixed
anything, but simply transferred the cancerous toxic derivatives and
other financial bombs from the giant banks to the nations themselves.

Caveat: Even though Italy’s debt/GDP ratio looks high, it has a high household savings rate and virtually all of its government debt is owned internally, by households. So it may not be vulnerable as one might think.

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Pozzo's picture

I thought it was actually Greece, Ireland, Portugal, Spain, Italy, Belgium, California et al, France, UK, US, Earth, Milky Way, Universe

veritasrising's picture

The criminal Banksters need to be told to go do one!

Ireland should have had the guts to default on their so called debt, this would have been the start of a chain reaction that would purge the financial system. As usual the criminal banksters and greedy bondholders, don't think they should take any financial risk. While the government have been bought off and put the Irish people on the meat hook for the debt.

ft65's picture

Governments borrow money from PRIVATE BANKS - AT INTEREST! PRIVATE BANKS create money from "thin air" charging governments INTEREST, when governments could have their own bank and could create and spend money into existence at almost no cost to their citizens (as Abraham Lincoln's Greenback). The PRIVATE BANKS use government bonds as collateral in the FRACTIONAL RESERVE SYSTEM creating TEN TIMES MORE MONEY from "THIN AIR" to be lent to suckers AT INTEREST. PRIVATE BANKS own or control all central banks, they also own all the world banks.

This is the dirty little secret, and the big lie that the media, politicians, economists and education system keep from the majority. Pretending that money is real, not just numbers on a computerised balance sheet.

Quoting John Kenneth Galbraith Professor of economics at Harvard:

"The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent."


“Give me control of a nations money and I care not who writes its laws” - Amschel Bauer (Rothschild)

bigkahuna's picture

Europe has problems!? Why does it feel like a noose is tightening? I just get that general sensation every day that the issues of unfunded liabilities and government debt in the US are not addressed. On top of that, the federal reserve just conjuring money into thin air to secure more us debt? It is probably like a python and it's prey. The coils tighten slowly and by the time it achieves a death grip - the prey becomes food. I have a feeling that we are all (Europeans, Americans, Asians, Africans - you name it!) are going to end up as food. Kind of like soylent green or something. The NWO/bankster types will feed and pick our carcasses over.

tony bonn's picture

"But nations had no choice but to bail out their banks, did they?"

they did have a choice but since they are sociopathic greedy assholes they were blinded by strong delusion.....oh my god, the banksters might go broke and then all the gluons in the universe will dissolve...

you know the cia was behind all of the clap trap of too big too fail - they are trotting out that tired old domino theory from vietnam....fuck the fed and its pig sty....which by the way is what wall street was at its inception...

BigDuke6's picture

Steve mate, don't let on you are a Guardian reader.

Its only read by pseudo-marxist little rich kids thats wanna be commies and then grow up and become banksters.

As ur from virginia u maybe dont know that.

anyway dont worry about the uk, the taxpaying populace is so beaten into submission they'll pay for everybody.  Papers like the guardian encourage it.

bullet357's picture

The NWO will kick the can down the road as long as they want.  Just look at the Market it sings right along even on Bad news.  Its one big Ponzi scheme. {Bill Gross, Nouriel Roubini, Laurence Kotlikoff, Steve Keen, Michel Chossudovsky and the Wall Street Journal all say that America is running a giant Ponzi scheme as well.}  If the so called experts are saying this and its ending up on deaf ears (market keeps going UP UP UP.)  They will just kick it down the Road. On Monday as always the market will be up regardless of anybad news. Greece Ireland Portugal  Spain  Italy  UK not a chance of domino. The NWO would not permit its baby to fall.  Like any good parent they will take care of the children and bail them out.

steve from virginia's picture

This is diff from USA liquidity shortage in '08. Problem in EU is depositor flight from banks then away from euro. In USA the prob was on the asset side and counterparty runs on shadow banking.

Extend/pretend held rotting assets off balance sheets which saved the US banks. Euro bank were already doing this.

US taxpayers via Bernanke via Treasury via IMF and EU taxpayers via Ireland are bailing out UK and German senior bondholders. Add swap lines reopened earlier this year and there is your QE2. The bank of Ireland and Anglo- Irish are being recapitalized in the front doors while depositors are fleeing out the back (and made whole, btw. No harakiri cuts for depositors.)

This means a) EU real estate bubble/crash was a scam from the getgo (no news here) and b) the entire 'bailout' nonsense is a money laundering operation. Banks get to keep worthless bonds, depositors and seniors get bailed @ par with dollars or euros (take ur choice) and bill is presented to taxpayers who will not pay because they are broke.


AnAnonymous's picture

Nice delusion. The economy is contracting, taxation cuts are maintained or extended. Yet the US tax payer is able to provide more and more taxation superficy to afford.

Maybe put a zero tax on US tax payers would one day allow to bail out the entire universe?

The FED operates outside the necessity of the US People. The FED does not need the US tax payer to be operated.

Tapeworm's picture

 George W.

 I saw the usual claptrap replies on Naked Capitalism's re-post of your piece. Several are saying that there is no comparison and that US/UK don't matter because they can print their ways out of it.

 I would like to see someone come up with reliable figures on what the productive portion of the various economies really is in comparison to the bailouts assigned to each nation.

 For example, what is the private sector total production minus their costs of same? Necessarily private sector production of internally used armaments and non productive gombit purchases must be excluded. Let us find out what these bank bailout/goomint bailout burdens are as compared to the real economies in each nation. GDP figures are garbage as they include all of the non-productice waste of goo purchases and employment.

 Of course payments on goomint debt are by definition non-productive, and I'll throw in any interest payments as non-P, so should be eliminated in the basic calculation of just how large these bailouts are in relation to the real economy.

AnAnonymous's picture

Of course payments on goomint debt are by definition non-productive,


If payments on debt only allow to move to you the principal for the value of the interests, are not payments on debt by definition productive?

If a person engages in a permanent default scheme, like a classical pyramidal Ponzi, arent the payments productive as they allow to maintain the scheme?

GrouchoNotKarl's picture

Didn't the US worry about the domino effect in terms of Communist takeover by the Soviets in the 50-60s? So this time it is the IMF/World Bank/(insert central bank) take over by domino effect and not a bullet/bomb was used.  Whether this is engineered or not, you have to admit to the diabolical efficiency that this is occurring.  While the collective world is focused on N. and S. Korea fiasco, Europe is going to be fully usurped by the banksters.

Spitzer's picture

souldn't the Euro go up if all these countries fail ????

You know, deflation ?

Non Passaran's picture

When Greece was about to fail I made a tiny bit of money shorting Euro via an ETF. But later as Greece got bailed out, I got smoked.

I doubt the Euro will go up as the EU is doing the same thing as the US and the dollar hasn't been doing too well (and in the EU some countries will probably leave the Euro so it could get really crazy). The problem is, who knows what other desperate measures will be enacted and that can cause one's short bet to behave very unpredictably.

I've been thinking what to short now (as a retail investor). Precious metals seems to be the only reliable way. If someone has a better idea I'd like to hear it.

edwardo1's picture

"It didn’t have to be like this. The European nations did not have to sacrifice themselves for the sake of their big banks."


What didn't have to happen is that the political systems of both Europe and the U.S. became the handmaidens-make that whores-for the commercial banking pimps. In the U.S., at least, the people are, by Consitutional right, The Sovereign.  It's time to start acting like it.

Durchbruch's picture

Italy has also the 4th absolute largest gold reserve

(after USA, China and Germany). The first gold reserve

in the world per capita, given its populace  is so small in 

comparison to the first three. In case of a 

systemic failure that gold is going to have a lot

of value. It was a Mussolini's gift and they managed to retain it after the war.


Goldenballs's picture

Fact is that all these dominoes must start to effect the rest of the world soon enough,surely 3% here 4% and 5% there of exports,has to start affecting the likes of Germany,France,China,India,Japan,etc, the contagion can,t just be held in Europe,the results have to be exported.Where will the rest of the world be in 3,6,9,12 months,anyone who thinks this can be contained shouldn,t leave their padded cell.Gold and Silver parabolic soon.

Seer's picture

The fact that things are turning negative (contraction) is all that's necessary to engage the tripwire.  Capitalism (nor any other large-scale system) cannot operate without an ever-expanding environment (read "extraction and exploitation of natural resources").  The downturn all started with the peak extraction of energy/oil.  At some point the growth-momentum will be quite apparent to all and that'll be when the current system dies.

blindman's picture


JP Morgan responds to Max Keiser’s ‘Buy Silver’ campaign with ReWorked Ad November 27th, 2010 by maxkeiser
bigkahuna's picture

LOL! Thinking is difficult - please return to watching television, it is much easier..

fun link


lunaticfringe's picture

You forgot the world's 8th largest economy...California. Maybe we could ask the EU for a bailout.

DavidRicardo's picture

"Caveat: Even though Italy’s debt/GDP ratio looks high, it has a high household savings rate and virtually all of its government debt is owned internally, by households. So it may not be vulnerable as one might think."


Don't worry.  Italy's plenty vulnerable--they lie even more than the Greeks.


Wanna know the most comprehensive Ponzi economy of them all?  California.

MGA_1's picture

Terrible troubles, but will it be this fall, next fall?  Difficult to know.  The authorities, by all accounts, don't want it to fail and seem to be willing to take strong measures to keep things going.  I'm of the mind that we might just see bailout after bailout until the public just gets sick of something.  It might be a number of things, but I'm guessing inflation.

Saxxon's picture

Yes; patches, add-ons, half-measures, kicking the can . . . not very exciting but that is how bureaucrats prefer to work.

The one good bet that I can find is, they will do their best to avoid Deflation as they define it . . . they will find a way for the masses to feel richer.  They have to or it's the gallows because they are thieves and traitors.


ebworthen's picture

It is hard to not see all of this as engineered, however, simple human greed and lust tend to create the greatest of tragedies so perhaps it is natural.

Seer's picture

No engineering was needed, perpetual growth on a finite planet, no matter what "system" was used, would ALWAYS lead to the same end.  What's engineered, however, is who is taking advantage of this game... of course, Mother Nature ain't gonna care what cards you carry, reality will come to roost, ain't nowhere to hide, for no one!

AnAnonymous's picture

of course, Mother Nature ain't gonna care what cards you carry,


But human societies will and is what matters the most.


Lets recap and make a bit of anticipation:

For centuries, the Western world has been busy with moving wealth from an exterior to its territory (Smithian economy)  Result: living on the ever increasingly better environment is priced more and more (hence various subsizides to citizens to help them stay on the territory)

Mirror result: the capacity of developping the exterior are thinning, especially as the debt scheme allows to move the principal of what is extracted from the exterior for the amount of the interest only.

One point in time: the idea of developping the exterior, still maintained by the locals, will have to be surrendered as resources will not be enough to maintain Western capacity and developping  the exterior.

Resources will be allocated exclusively to maintenance of capital built up in the Western world.

Concomitantly, the population sizes of the exterior are crashing, opening a windows in the Western world to depopulate and  remove population that is no longer useful as the game would no longer be one of consumption but one of management of resources.

Contrary to what happened from 1492, the expelled western population are not going to find a  promising environment but one completely devastated, with some places being radioactive from the careless extraction of uranium, achieved by  the West, decades ago. This would remove the threat of getting a new US.


Better to hold a hand that allow you to stay within the Western world...

1100-TACTICAL-12's picture

naturally engineered, go NWO organic when possible....

hugovanderbubble's picture


Nice article, just let me give u some extratips.


Belgium is in a worst situation than Italy.


So after Spain---------> Belgium and.... Dubai?Pakistan? dont forget those 2... Dubai,and Qatar has been trapped at oil leveraged loans at [113-129$] so with less oil demand cos global growth is lesser than expected...DUBAI (french ,Japanese and Uk Banks big blackhole coming)


Spanish situation with Pension Funds gonna explode, also Real Estate Balance Sheets and Valuations are the biggest scam ever. Madrid and Barcelona still has prices at 4.200 euros sq.meter so -30% is the minimum retracement for big cities, till our House Price /GDP per capita drops from an illusionary 7.2 x times to 3 or 4x times.Audits(Deloitte,KPMG,Ernst&Young...),Realtors (Richard Ellis,Jones Lang Lasalle,Aguirre Newman...),banks,saving banks all are fraudulent players---Has Acted as an oligopoly or a Cartel in a deeper sense.

Italy has done a special effort to accept offshore Inflows during end of 09.,but honestly , can u trust Italian Macro Accounting/Budgeting policy? Greece has done tricky accounting, Hungarians too...this stuff is a big mess. Confidence gonna be close to zero in just big bankruns has a very real likelihood -possibility till the Crappy Governments makes confiscations schemes. State of Siege in 2011-(Spain is financially collapsed)

So another question could be...? Should we close or delete/forbid any offshore account/country for ever to bring flows to real countries?

Nice weekend,



Mr Lennon Hendrix's picture

Didn't that deRothschilde guy say in '08 there 'would be no problem because Europe nationalized their banking sector' and asked for America to do the same?  Maybe none of this would have happened if America had nationalized into an outright fascist regime (I know, how could it get any more so!!).  It could have entrusted "The Market" with Social Security like Dubya Steppa' wanted too.

Go all in Europe, the US will do so right after the cartridge is expelled.

palmereldritch's picture

I guess that makes the UK the tramps and thieves?

[*WARNING*: Cher video]

bearnanke's picture

One of the links ai'nt working.. It's this one:


For more on the interconnections between Euro economies adding to the risk of contagion, see this.

The right link would be:




El Hosel's picture

"A failure" by one of the latter 3 would be devastating for the world economy.

  Raise your hand if you think we are going to see just ...."A Failure".



I am more equal than others's picture

Domino's, delivered in a half hour or less or else it's freeeeeeeeeeeeeeeee


Commander Cody's picture

When they're finished looting, the banksters won't care what fails.

RockyRacoon's picture

...and we are in the final innings.  I hope everyone has an exit strategy.

I don't mean running for the same small doorway that everyone else is inching toward.

EscapeKey's picture

Silver bars are completely sold out on's website. I've never seen that before.


Azannoth's picture

Why pay 17.5% tax? In Germany bullion is 19% but coins are only 7%

Why pay 17.5% tax? In Germany bullion is 19% but coins are only 7%



So you are paying 28 euro for 1 oz I am paying 23 atm

Cyrano de Bivouac's picture

EscapeKey-check out "Stand for Delivery" website. I pledged to buy 5 oz. of silver which I did today.

RoRoTrader's picture

Nice article GW...........also posted at Yves Smith's naked capitalism.

2028's picture

Domino’s Pizza founder Tom Monaghan -Knight of Malta -Legatus-now you are on the trail.