It’s been awhile since a country in the EU has defaulted on their credit obligations since Germany in 1948. Credit Default Swap prices have increased significantly on Greek Sovereign Debt and Fitch has downgraded the debt to below investment grade at BBB+. In reaction, the Athens Stock Exchange has lost 11% in the last three days. Why is this a problem? Since the events of last year with the bankruptcy of Lehman, the bailout of AIG, the nationalization of RBS and Lloyd’s in England, credit spreads have narrowed and world stock markets have come significantly off their lows. The possible default of sovereign debt of both Greece and Dubai signals that there could be more significant problems in the future and that the world economy is not in a true recovery. What does this mean for us at Wake Forest Schools of Business? Jobs, without free flowing credit, companies cannot meet short term obligations such as payroll and they will not hire new permanent employees. Although temporary hiring has increased in the past few months which is generally a precursor to an increase in permanent hiring, we all know this “recession” is different than anything many people have experienced. Restoring a functioning credit market is one step in the right direction to recovery. Let us hope that these credit events with Greece and Dubai are just ripples in the pond and not the signal of a new downward trend.
By: Jason Wu - WFU MBA 11'
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