Firstly Happy New Year to readers,
I have often spoken on here how our the fate of the UK economy depends so much on it's European partners. Nothing demonstrates this more graphically than the interactive chart here - http://www.bbc.co.uk/news/business-15748696
If you take a look at Greece for example it's government debt to GDP ratio is stated here as 166% - clearly a huge figure, but what you can also see is that French banks have lent the most to Greece - some 41.4bn euro. Of course if Greece were to default on it's debt (declare that it cannot pay it back) then French banks would loose a large part of this 41.4bn euros & many would then need further government help to maintain their solvency.
Meanwhile with such large debts, Greece cannot affordably borrow on the international money markets (as they are seen to be so risky the rate of interest charged would be unaffordable) the only way that Greece can maintain a deficit is through continued bailouts (other countries making benevolent loans).
How did we allow ourselves to get into such a mess where we are all interdependent on each others fate - well in my view the single euro currency covering such a diverse range of countries from Greece to Germany. How can one common exchange rate & interest rate be correct for such a mix of countries?
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