Last fall, amid warnings of worldwide outbreak, millions rushed out to get inoculated against H1N1 – the dreaded Swine Flu virus.
Official from the World Health Organization (WHO) to the Centers in Disease Control (CDC) in Atlanta, girded themselves for a contagion rivaling the 1918 Spanish Flu pandemic that killed between 50 to 100 million, the largest natural disaster in modern recorded history. Historians estimate that 500 million people, one-third of the global population, was infected with the Spanish Flu.
Although an H1N1 pandemic has not materialized, a financial virus festering in Greece has begun to spread from across Europe and threatens to undermine a global economy that remains weak from the deepest recession in a generation.
Ebola Is the Metaphor
Much as officials in the European Union try, they may not be able to inoculate themselves, or the rest of the world, against the virulent credit crisis that began several months ago in Athens. Many analysts have likened the widening Greek calamity to an economic Ebola virus.
Because their perceived risk of default is high, Moody’s Investor Service, among other credit-rating agencies, already has reduced Greek government bonds to junk status. Moody’s appears poised to downgrade Portugal’s credit rating as that country struggles to reduce its debt burden and restart its flagging economy. From all indications, reductions for Spain and Ireland are not far behind.
The euro currency has fallen to a 14-month low of $1.28 on fears that the entire region may be one default from collapse. E.U. leaders, like Germany’s Angela Merkel, have been quick to downplay the serious nature of Europe’s economic predicament, giving assurances that they will soon get their house in order.
Even with a combined European and International Monetary Fund aid package that may top $142 billion, many economists think that it may not be enough to avert a Greek default or contain the contagion. Although their circumstances are not as outwardly serious as the situation confronting Greece, Portugal, Spain and Ireland are facing similar fiscal woes and also may need E.U. financial assistance.
We Are Getting Hurt
Following promises by Athens to tighten its belt, the situation in Greece has grown deadly. The Greek austerity drive has sparked riots. Police were put on high alert as protesters hurled rocks and Molotov cocktails yesterday in the Greek capital. So far, at least three people have been killed.
Europe’s economic struggles have had an immediate impact on the U.S. stock markets. Yesterday, the Dow fell by 259 points and the S&P 500 lost 2.4 percent, the biggest rout since February.
More than $1.1 trillion was drained from global stocks yesterday. The MSCI, a gauge of equities in 23 developed nations, declined 1.2 percent, leaving it down 1 percent for the year.
In addition to wiping out the gains for the year, the fears of a broader European crisis caused industrial metals like copper to slide to a three-month low under $7,000 per metric ton while nickel prices tumbled 11 percent. Oil dipped below $80 a barrel and gold prices have surged above $1,175 an ounce.
Despite the steady improvement of the domestic economic indicators, the darkening pall of uncertainty spreading across Europe – our largest trading partner – could pose a continuing threat to our recovery.
Yesterday, the U.S. stock markets faltered even after the Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90 percent of the economy, hit an almost four-year high of 55.4 for a second month. Deep concerns about mounting European deterioration also overcame a distinctly positive report from ADP Employer Services, which showed private U.S. employers added 32,000 jobs in April, a third straight month of gains.
Reports out of Europe have done little to calm the waters. Anxieties and alarm about the European situation were not helped by yesterday’s worried comments from European Central Bank council member Axel Weber who ominously warned there is threat of “grave contagion effects.”
Whether we like it or not, we are linked at the hip with the Europeans. In a global economy, we need them as much as they need us. If the Europeans are not able to contain the Greek Flu, its effects could quickly spread to our shores, causing a significant setback for our own fragile economic recovery.
Hopefully, the Greek contagion will peter out just like its viral cousin H1N1.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
