Monday, 3 May 2010

Sovereign debt and the interest rate time bomb

So far the UK appears to have come off lightly compared to Greece. This is owing to the huge devaluation in the UK currency, which means a lot of the hit on living standards which Greece is now taking from wage cuts is happening in the UK from surging import prices and a rate of inflation well above wage increases. It has also owed a lot so far to £200 billion of money printing, something Greece cannot do for itself as a Euro memebr. This has kept UK official interest rates and government borrowing rates artificially low. It gets a lot tougher when rates rise further: then the taxpayer gets sandbagged by the increased costs of servicing the rising debts. The state borrows more to pay the interest! more...


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