Wednesday , 21 February 2024

Who is Next in the 'Game' of Sovereign Debt Default Dominos?

Despite the European leadership’s attempt to lessen the sense of urgency in the euro zone and despite the ambitious plans rolling out to shave outsized deficits, the problems with governments’ finances are not finding a resolution. More likely, it’s just the beginning of another major destabilizing force for the global economy and the result is looking more like another bout with recession – or perhaps depression. Words: 707

In further edited excerpts from the original article* Bryan Rich ( goes on to say:

Sovereign debt is setting the dominos up for a fall.
Here’s a brief look at how the dominos are setting up to fall, and ultimately why I think the British pound is the next vulnerable currency, as fear and instability spread from country to country.

Falling Domino #1: Dubai – the Wakeup Call
In late November the Dubai government created a hiccup in the rosy plans that many market participants were increasingly hitching their wagons to: A V-shaped economic recovery. All of the sudden the new, innovative center for global finance was in default and, contrary to what was assumed, its rich neighbors weren’t there to provide a lifeline.

Now Dubai World’s debt holders are getting only 60 cents on the dollar for their government bond investment.

Falling Domino #2: Greece
Greece, the weakest of the sixteen-member European monetary union, the euro, was running a budget deficit more than four times the limits set forth in the euro-zone’s fiscal constraint guidelines.

The ratings agencies took the alert from Dubai and they started slashing Greece’s sovereign debt ratings sending out a warning signal to all debt holders and making Greek government debt refinancing that much more difficult.

Falling Dominos #3, #4 and #5: Portugal, Ireland and Spain – The Next Trouble Spots
Portugal, Ireland and Spain all have severely bloated deficits and debt levels putting them in violation of European monetary union (Emu) guidelines, not to mention diminishing their outlook for economic growth — a tool desperately needed to start dealing with their red ink.

Consequently, the ratings agencies have put these weak countries under the magnifying glass and, as such, ratings and outlooks have been downgraded. For example, Spain, the third largest economy in the euro zone, lost its AAA rating in January.

Now, with European leadership stepping in to provide support to the most immediate need, Greece, it has opened the floodgates. There is nothing to stop the other weak, fiscally-irresponsible members from lining up hat-in-hand to be bailed out by the stronger, more fiscally-responsible ones.

As for the euro, this total breakdown in the foundation of the currency union has it on a path for destruction or, at best, an extended period of uncertainty.

Falling Domino #6: The UK – Looking Grim
The next, most vulnerable and biggest domino in line to fall is the UK. Among G-7 countries, the UK has the weakest performing economy, the largest deficit and the worst deterioration of its debt position. As conditions get worse in the euro zone and it becomes increasingly evident that there are no clean fixes, the UK is the most likely candidate to come under the gun and become the next victim of currency speculators.

Falling Domino #7: The U.S. – In the Crosshairs
In this spread of sovereign debt fears, bond market pressures and falling dominos, the U.S. is in everyone’s crosshairs.

In a scenario where a sovereign debt crisis spreads through the major economies of the world and impacts some of the largest, most liquid currencies, the world doesn’t look like such a safe place any longer.

* (Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. To view archives or subscribe, visit

Editor’s Note:
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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