The spread is actually the highest between France and Germany since 1992!
This is why Europe MUST find a solution to stop the spreading of the debt crisis. We still believe Europe has tools to avert a meltdown and if she does, expect equity markets do well from Wednesday on. ECB has tools to avert Greek default
It's easy to put fingers on China, a country the U.S. has the largest trade deficit with. It looks like China is one of the largest contributor to our financial woes.
But there is a whole lot more to a huge government deficit than just a widening trade imbalance with China. For one, had it not been for cheap manufactured goods from China, consumer products were more expensive. Who would want to pay $350 for a baby stroller, a price Europeans pay, when China can supply it for $100 at Wall Mart? Many argue that they would be willing to pay more for products had they been made in the U.S.A. But the fact of the matter is that a large number of companies chose China for manufacturing because their more expensive U.S. manufactured goods were less appealing for price sensitive consumers.
And here is another fact to think about. Thanks to an over $1 trillion federal debt for three consecutive years, current total debt stays at $14.8 trillion. But debt service was just $227 billion thanks to super low interest rates. The FED has been doing an outstanding job in exporting our debt at super low rates... to who?... U.S. financial institutions and China! Yes, the Chinese lend us money at super low rates so we can continue to live the way we are used to. It's not that they want to but rather they have no choice. Yet.
The good news is that most likely Slovakia will pass the rescue package, all yesterday's vote was a Slovakian domestic political showdown. Mrs. Radicova, head of Slovakia's ruling coalition, offered her cabinet's resignation should the vote not pass parliament. That was the best news opposition parties could hope for to boot the current coalition government. And that's what they did, blocked the vote.
Chances are that members of the Parliament will quickly pass the Euro rescue fund vote without a majority government. Going forward, it can be either a new coalition government that will do it or a new election will be held.
Nevertheless the case represents the problem Europe faces when dealing with 17 different countries. Europe is not federalist and thus any significant decision has to be approved by each and every member of the block. This makes Greek rescue efforts even more difficult - though Europe has the means to solve it!
For now, investors will have to live with elevated market volatility. Thank you Slovakia and like-minded politicians.
October 4, 2011 (Chinavestor) It may seem absurd for China stock investors to spend a whole lot of energy analyzing Greece's debt problems for the first sight. Remember, Greece's DGP amount to $310 billion, nothing compared to $10,090 billion for China. Yet this small country has a real impact on equity markets around the world.