Next year may have a bit more excitement than most expected. Just as many US states will have a rough year as the federal dollars disappear, many EU states are increasingly under scrutiny.
But even as concern mounts that Portugal and possibly Spain may seek financial aid after Greece and Ireland requested bailouts, investors have started asking whether their economies may be the next weak links in Europe’s monetary union.
Italy and Belgium have a lot in common: Both have big domestic surpluses and are less dependent on foreign creditors than Greece or Ireland. But each is plagued by severe political dysfunction, which has raised questions about whether they can ever repay a mountain of debt, respectively the second- and third-heaviest loads in the European monetary union after Greece.
Debt and political problems have long histories in both countries, but were free to devalue their own currency to climb out of an economic downturn before joining the euro. But none of that seemed to matter until this week, when investors, transfixed by debt fears in other countries, drove borrowing costs in Italy and Belgium to near record highs.
