Sovereign Debt Spreading

[edho11]

Hi, I have trouble understanding why debt in Greece could spread to other euro countries? Is it because investors would be reluctant to invest into those countries in which the country is not able to grow to meet the demands of their debt?

 

[Trembling Hand]

Its not spreading to other countries its the problem of the huge government debts that has built up over the last decade or more in similar/other countries that they can no longer fund due to less tax collected due to the economies going bad. With that worry, the governments cannot meet their repayments, investors that buy government debt are asking for higher interest repayments to cover the higher risk making it even harder for the governments to roll the dept into new IOUs.

 

[Aussiejeff]

Or, put another way...

Greece owes Spain, Germany, France, England, Italy, US, China etc..
Spain owes Germany, France, England, Italy, US, China etc....
Germany owes France, England, US, China etc...
France owes Germany, England, US, China etc...
England owes Germany, France, US, China etc...
Italy owes Spain, Germany, France, England, US, China etc...

...and then there's the good ol' US of A

Simple, really.