From the crowning tip of Dubai's ultramodern skyline to its ancient Greek roots, shifting financial fortunes continue unsettling foundations globally. Headlines about Dubai's debt crisis have faded somewhat, but markets fidgeted Tuesday after Fitch's downgrade of Greek government debt. (Ratings agencies also again warned the US and UK of possible downgrades—but we doubt they're truly in jeopardy anytime soon.)
Greece has the highest deficits in the EU, and though it's just 0.6% of world GDP as of 2009 (according to the IMF), what a Greek default would mean for the EU as a whole is a legitimate worry. Tuesday's headlines were clearly enough to spook markets for a day—and the euro lost ground to other major currencies.
But Greece's troubles are nothing new. Fitch's downgrade doesn't mark a significant deterioration in Greek finances; rather, it's a belated confirmation of what markets largely already know.
Greece's debt struggles won't likely end in the immediate future. But longer-term projections that Greek government debt could reach 125% of GDP are no guarantee either. Economic forecasts are frequently altered, adjusted, and amended month to month—most prognostications being shaded higher of late. A global return to growth would inevitably bolster public coffers the world over, and it could be the globe recovers an unexpectedly rapid roll. Depending on the recovery's strength, Greece and other similarly suffering countries may be in better shape this time next year.
There's always the chance things get worse for Greece and the EU over the coming months. Much would then depend on how Greek and EU policymakers respond to economic travails. It's nearly impossible to predict what course they'll take should conditions deteriorate significantly—but continued EU support seems in the interest of both Greece and the region as a whole. Ratification of the Lisbon Treaty and the union's resilience through its first major economic crisis demonstrate EU ties are stronger than many imagined.
International pockets of recognized weakness—like Dubai debt or Greek deficits—will periodically flare in the coming months. It takes time to unravel the knots tied by severe economic dislocations. But barring major new developments, none of the shocks surfacing so far have the power to knock the petals off today's budding revival.