The World Upside Down

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Byline: Rana Foroohar

Is Greece the new Paraguay?

Europe has had plenty of embarrassing moments in recent weeks. Aside from the inept response to the Icelandic volcano, which also shot a cloud of jokes onto Facebook (my favorite: "Europe to Iceland: we said send cash, not ash!"), one of the lowest points had to be Greece's attempt to sell itself as an "emerging market." That was the pitch to investors this month, as the Greeks began offloading billions of dollars' worth of bonds by advertising that their yields (and their risks) were higher than those of any number of poor developing nations.

It's truly a sad day when the cradle of civilization has to rebrand itself as Paraguay. In keeping with its new status as a pauper nation, Greece is likely to be bailed out by the International Monetary Fund and the European Union for a total of $60abillion. Yet it isn't even the biggest basket case in the Western world. Italy suffers from a debt five times as large, and is also teetering on the brink of insolvency thanks in large part to its truly absurd leader--Silvio Berlusconi is a distressed asset if there ever was one--and a finance minister whose suggestions for improving the economy have included offering amnesty to any Italian willing to bring home his or her illegally acquired assets. (Mafiosi, call your accountants now.) No wonder banks such as Morgan Stanley are speculating that Germany, the biggest continental economy, might actually pull out of the euro zone in order to avoid having to bail out any more of its neighbors.

America and Britain shouldn't laugh. The U.K. has run up debt faster than any major economy over the last eight years, and the U.S. isn't far behind. Both are in danger of losing their AAA credit ratings if things don't improve. According to the Council on Foreign Relations, America is now the world's major financial gambler, as the government's portfolio has been filled in recent years with riskier assets--the U.S. tends to hold more potentially volatile equities, for example, than other big nations. Poor countries, on the other hand, are spending more on "safer" bets, including U.S. T-bills, which are now 57 percent foreign-owned.

The whole idea that developing nations are more dangerous, financially speaking, is fading. …