With the new Greek restructuring deal agreed, the question is whether fears about the sovereign debt crisis will abate or will the markets simply start looking elsewhere for other troubled waters.
In this regard, Japan increasingly looks like the real stand out. A variety of famous investors have come to the conclusion over the past two decades that Japan was on the verge of a major sovereign debt crisis, only to retreat quietly after it becomes clear that domestic deflationary pressures and strong domestic bond demand are continuing to keep Japanese bond yields remarkably low.
Japan has somehow managed to creep by with its problems untouched, or as some of us have described it, seemingly enjoying a “happy depression”. But the fact is that Japan’s outstanding debt to gross domestic product at a whooping 230 per cent makes Greece’s latest 120 per cent by 2020 target seem like a picnic by comparison.
Add to that a very weak demographic profile and declining industrial productivity, and it quickly looks as though Japan’s “happy depression” of the past 20 years is set to become less happy and more depressed.