No, at this point, no. Our baseline is that Ireland and Greece are receiving funding, that this funding will be extended to other countries if necessary, and that the Eurozone as a whole will remain in place. The fallout from the austerity measures [in Ireland, Greece and the rest of Europe] is slow growth in the Eurozone because of slow demand. There is less of an impact on the U.S. In terms of the global impact, it is our view at this point that it is still limited.

 

The other more recent effect on Europe is that the uncertainty in the bond market will continue. It looks like the spreads for Portugal and Spain are not coming down as they did after the [US$102-billion rescue] package for Greece [was agreed to in May], and that’s because the Eurozone is now discussing a debt resolution mechanism as of 2013. It means that there is high uncertainty among bond investors and that will keep the markets volatile and the uncertainty going for some time. That’s why we’re not seeing the same reaction as after the Greek programme. 

 

But many economies [in the European Union] can still achieve the Maastricht Treaty criterion of government deficit equalling 3% of GDP by 2015. However, one should not expect a fall in the debt levels [to 60% of GDP as mandated by Maastricht]; they will rise way beyond 100% at least for Ireland and Greece.

 

It was not realistic to begin with to think that debt levels would come down in the short run. That’s a medium-term process. We always said it was a three-step process. First was solving the bond market problems. The second step is bringing down the deficit to a sustainable 3% or less. And the third step is to bring down the debt levels.

 

They have taken the first step for Greece and for Ireland. So we’re not anticipating any major hiccups in the bond markets from those two countries because they have financing assurances from the Eurozone and the European Central Bank. What we have pencilled in is slow growth for the Eurozone because of the budget cuts that are happening across Europe.

Yes, and the Greek economy, for example, is one of the less open economies in Europe, so it’s geared towards the domestic economy. The biggest link from Ireland to the rest of Europe is also not the real economy. If anything, it’s the banking sector because most of Ireland’s debt, as well as the Greek debt, is held by foreigners. A large part is held by foreign banks. That’s a chain of contagion that is still there in the banking sector, depending on how [Greek and Irish] bonds are going to be evaluated or priced in the future.