By: Dr. Mike Campbell

The sovereign debt crisis is bad news for political leaders – on a personal level.  At the end of last week, Greek Prime Minister George Papandreou abandoned his plans to hold a referendum on the latest EU measures to shore-up the Euro and prevent a disorderly Greek default on its debts. He narrowly survived the vote, but his position had clearly become untenable. He is in discussions with opposition leaders about the formation of a government of national unity that will need to ratify the EU proposals in order to ensure that further EU/IMF funds can be released. It is clear that Mr Papandreou will not be leading the new interim government; new elections will probably be held in February.

The cost to the Irish leader of securing an IMF/EU loan for his country was his job. Brian Cowen was forced to call an election and step down as leader of Fianna Fail and then his party was swept from power in the election.

Portugal’s leader, Jose Socrates fared no better when his country had to accept the inevitable and accept their own EU/IMF bailout. He was unable to get an austerity budget approved by parliament and was forced to call an election which he lost, leading him to resign as party leader.

The next candidate for the guillotine would seem to be the otherwise indestructible Silvio Berlusconi. Italy has massive public debt problems and a recent plan for reform was attacked by IMF leader Christine Lagarde, as “lacking credibility”. The markets are increasingly nervous about Italy’s debt and the cost of securing ten year bonds has hit unsustainably high levels of 6.73% - the Italian debt burden is believed to be €1.75 trillion. By comparison, Germany is paying 1.8% interest on its 10 year bonds. One percent of €1 trillion is €10 billion; so if Italy was paying 6.73% on its total debt, its annual interest payments alone would be more than a fifth of the total Greek debt.