The End of the Pound?

Posted by: Michael Mandel on January 22

Back in October, when Iceland went bankrupt, I did an analysis of the overseas debt of major countries. I was surprised to see that the U.S. was in relatively good shape. But the big problem? Here’s what I wrote back then.

The biggest dangers are for the UK and Switzerland. These countries, although much bigger than Iceland, are major financial intermediaries with big external debts. What’s more, they are outside the major currency blocs, with debt denominated in foreign currencies. That means if their currency starts to devalue, their debts will become more and more onerous.

That’s what we are seeing with the UK.

I think that countries outside the major currency blocs are going to be forced to join, for self-preservation.

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Reader Comments

Lord

January 25, 2009 11:27 AM

While the UK may be tempted to join, Spain may be tempted to leave. Higher debt is painful, but so is an exchange rate that doesn't devalue, not allowing trade to rebalance, and provide the means of paying the debt. I would guess the latter is worse, trade being more important than debt.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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