It’s a world of difference between getting ready, and being ready. The same concept applies to that of the plight the Eurozone is in now. With debts heavy enough to weigh down its sinking ship, there are no conclusive signs of hope for a fast relief to its problems, at least that is what the critics and realists feel for now. The $1 trillion EU rescue plan, which was announced by German chancellor Angela Merkel, is doing petty justice to the damage which included the recent risk aversion washout that sent the euro plunging to a 4-year low of 1.2440. With fiscal budgets in those affected economies being slashed, investors are worried that the region could collapse into a serious recession dampening growth across the 16-member union. It was clear that the rescue plan was to buy the Eurozone time while it sits down and reassess its current situation.

Unmasking The P.I.G.S.

The P.I.G.S. acronym refers to the four most troubled and heavily indebted countries of Europe – Portugal, Ireland, Greece and Spain. For those who are not brought up to speed about the latest slur of events that the P.I.G.S. have caused (though not collectively), they are additional economical weights which have contributed to the sinking of the Eurozone ship. In summary, Portugal is facing the most daunting financial and economic crisis without precedent in its recent history. Ireland, nicknamed the “Celtic Tiger” in previous economic booms was the first country within Eurozone to fall into recession in 2008. Despite having emerged from recession last year, its gross debt forecast of 82.9% of GDP for 2010 is not encouraging the current plight the P.I.G.S. are in at all.

Greece’s deficit is standing at a tall order of 12.7%, which is four times more than the allowed deficit in accordance with the European rules. Its gross debt forecast of 125% of GDP is alarmingly disturbing and raises concerns as to whether it could be saved after all. Spain is seen as the next country that will rattle the financial markets. Being the fifth largest country in the European Union, its jobless rate of 19.5% makes it the country amongst the P.I.G.S. with the highest unemployment rate. Under the immense pressure from the International Monetary Fund (IMF) to contract it by 0.6% in 2010 and with debt forecasts of 66.3% of GDP in 2010, it just doesn’t help to contain the damage sustained by the Eurozone. In addition to that, Spain is the last major economy in Europe still in recession despite all the other aggravating economic factors of Spain itself.

Fear that spreads like bush fire is plaguing the financial markets internationally. From major indices to the currency market, the impact of the Eurozone debt crisis is clearly felt. The vicious cycle goes like this, the euro spirals helplessly downwards, adversely affecting the bottom line of multinational corporations, which in turn affects the general investors’ outlook of these companies. Multiply this effect by reality, and you’ll see the effect of such paranoia hitting the big stock exchanges eventually. To top it all off, the biggest player in the market, United States (US), is only just struggling to get a stable foothold after the bailout and the recent Goldman Sachs incident.

Impact On Asia And Other Economics

Asia is now different from what it was 10 years ago. Its debt fundamentals are much improved and it is believed that sufficient cushions are in place to break the fall as compared to the US. Dominated by buyers and sellers in the market which are cohesively fuelled by emotions and decisions influenced hugely by psychology, volatility on the boards is expected to be seen across the STI and several other Asian exchanges. Because of the economic influence the US has on the world, Singapore will not be spared. It is a known fact that Singapore’s exchange is constantly influenced by the well being of the other big players of the financial markets. When fears of such uncertainty en route the US, which is a major benchmark for the Straits Times Index (STI), STI will be expected to experience the volatility run.

“Despite the recent announcements having stabilised confidence in Europe, concerns about public finances could build again. If they did, it would weigh on growth prospects for the countries directly concerned, and it could also weigh on prospects in Asia, particularly if it were associated with a marked increase in risk aversion globally.” Phillip Lowe, Assistant governor of the Reserve Bank of Australia (RBA) said in speech to investors in Sydney.

It is a matter of time before the dust settles and the Eurozone pulls out of its current crisis. No one can put a finger on how much time is needed for such revival but till then, the damages it will do to markets internationally if risk aversion conditions evolve is beyond the contained forecast of most experts. It will not be as painful as that of the previous mortgage crisis episode, but it will definitely be felt.