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It has come to the point where the market recognizes Europe (though not officially) is probably in recession. As per my usual criteria, lets ask ourselves: has the problem been solved? Despite Greece passing austerity measures to receive a bailout, the answer is no.

Here’s a great comparison:

I would have to say US investors should be fairly happy about the break-even year in the United States last year. But rather, Europe is showing a bumpy recovery. The differences in speed of recovery make it evident, that despite a strong German recovery, Italy and Spain may be next on the chopping board (Greece is already pretty much in soft default now, so including their numbers would actually skew the graph a lot). The Spanish and Italian economies are so fragile, a Greek default might actually just topple them over.

With about $100 billion dollars in CDS potential repayment ready to be triggered at hard default, Greece is almost holding the world hostage. The only way investor confidence could be regained, is if, as suggested by the Financial Times, Greek gives absolute priority to debt repayment. Banks like BNP Paribas and Societe Generale, who hold large amounts of Greek debt, look to have their balance sheets crippled shall another Greek debt repayment negotiation go through.

Oh yeah, and did I mention the European Central Bank holds around $50 billion in Greek debt? The European Union as a whole will lose a lot of their financial power shall the Greek zombie finally die in an ugly hard default. That’s why they are throwing everything they can at Greece to keep them alive.

I would have to back up S&P on this one: Greece has unsustainable debt, and no amount of restructuring is possible with the negative public sentiment. I suppose the only thing left to do is for Europe to make a Hail Mary pass, and hope everything somehow works out.