Teaching Greece and the Debt PIIGS to Fly

Greece's fiscal problems are but the tip of a global iceberg. The next instalment of the global financial crisis will be rising sovereign risk, especially in advanced economies that run massive budget deficits and accumulate large stocks of public debt as they socialize private financial losses to revive growth.

Indeed, history suggests that severe recession and socialization of private losses often lead to an unsustainable buildup of public debt. Moreover, financial crises triggered by excessive debt and leverage in the private sector are followed by sovereign defaults and/or high inflation to wipe out the real value of public debts.