The World PLC Is Unwell

"World plc" is unwell. Before anyone gets the wrong idea – this is after all the Finance Column – I'm not about to stray into areas medical, psychological or spiritual. But after a period of extreme economic intoxication and dissipation, it seems appropriate to echo The Spectator magazine which, whenever the lifestyle of its late "low life" correspondent took its inevitable effect on his health and reliability, would simply post the notice "Jeffrey Bernard is unwell" in place of his column.

Conventional wisdom tells us that the onset of the present financial crisis dates back to 2008. But that only tells us when the disease presented – the symptoms were certainly there well before 2008. In Spain's case, for example, the housing boom that ended in such a spectacular crash had been building for a decade or more.

It's clear that World plc remains on the sick list – and parts of it are still in a critical state. As with any illness, it took a while before any doctors were consulted and still longer to think about taking the nasty medicines they prescribed. Second problem. The doctors were faced with so many competing symptoms when World plc was admitted for treatment that it was difficult to know what to tackle first. These and other questions have plagued world markets ever since. Now that we are fast approaching mid-2012, I thought I would step back and consider where we are now (My "plain English campaign" also demands that I try to explain, in passing, what on earth is meant by a "haircut", quantitative easing and the LTRO).

It won't surprise readers that when considering the overall state of World plc's health, my first answer is to say that it depends on which bit one is considering. Before looking at those countries that affect us most here in Gibraltar, let's start with the worst European case. Greece's problems have been gripping the financial markets. Readers could be forgiven for thinking that Greece is now sorted. After all, a haircut has been ordered, EU funds lent and austerity in place. Problem over, right? Err, no – not exactly. Read on.

In March, Greece finally secured backing to cut over €100bn from its total government debt. The vast majority of Greece's creditors accepted the terms – this is the so-called "haircut" on bond yields – and, as a result, the EU and IMF have agreed to the latest bailout worth €130bn. The objective is to cut Greece's government debt from 160% of GDP to a little over 120% over the next eight years.

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