BUSINESS NEWS
It would be fair to say that U.S. hedge-fund manager Kyle Bass does not expect the explosion in global debt in recent years to turn out well. "This ends through war, "Bass, the founder of Hayman Capital Management in Dallas, said.
"I don't know who's going to fight who,but I'm fairly certain that in the next few years you will see wars erupt, and notjust small ones," he told a recent conference.
But while many investors have, like Bass, bet heavily on chaotic sovereign default in countries such as Greece, three years of dogged diplomacy in Europe have so far wrong-footed the doomsayers. And while some popular protests have erupted into violence, notably in Greece, the mystery for many analysts is why Europeans have not fought harder against escalating job losses, social spending cuts and tax rises. Unemployment in Greece and Spain has reached 25 percent.
Bass bases his apocalyptic view on his calculation that credit market debt has reached 340 percent of global output, saying the worldhas never lived in peacetime with such a burden.
He says some societies will notwithstand the social strain when trillions of dollars of debt have to be restructured, inflicting heftylosses on millions of investors.
War in the euro zone - which Bass does not expect to survive in its present form, if at all - looks far-fetched, to put it mildly.
Europe's political elite demonstrated in 2012 its determination to preserve the euro. Prophecies that doom has merely been delayed could well prove yet again to be wide of the mark.
But it is reasonable to ask how much those caught in the cross-fire between creditors and debtors will stand for as the euro's battle for survival drags on.
Take Portugal, now into the third year of recession, where the president has asked the Constitutional Court to rule on the legality of unprecedented tax increases. Adelino Maltez, a political scientist at Lisbon Technical University, said Portugal "got drunk on Europe" during the boom years. "Now for the first time we have the feeling that we have nowhere to go," he said."For 2013 the Portuguese lack a sense of mission. There is a recognition of collective powerlessness."
In other words, with scant prospect of a swift return to growth, the risk in 2013 is less outright conflagration in the single-currency area than a fraying of social and political ties and an insidious erosion of hope.
Watch Greece And Spain
Jean-Dominique Giuliani, who heads the Robert Schuman Foundation, a pro-European think tank in Paris, says difficult reforms must continue because
the crisis shows no sign of going away. "Changes will now be constant and will demand a great deal of populations, overturn societies, surprise political leaders and unsettle experts," he said in a commentary on his group's web site.
Charles Robertson, chief economist at Renaissance Capital in London, is among those wondering how much more voters are prepared to sacrifice. He expects Greece to quit the euro this year and says Spain might follow by the end of 2014.
