Martin Wolf said to me last week: “I am off for a holiday. By the time I return, two G7 governments may have defaulted on their debt.” I think he was only joking, but the past week has certainly been dominated by fears of sovereign debt defaults, with the US and Italy now in the front line.
They are two very different kettles of fish. The US problems, at least in the near term, are largely self-inflicted as a result of the game of chicken being played by politicians in Washington. In Italy, on the other hand, the perceived risk of default stems from the fundamental problems which the economy is facing as a result its own “lost decade” of growth, exacerbated by the failure of the Eurozone to solve its peripheral debt crisis. Italy’s problems seem much more intractable than those in the US.
