Greek 2 Year Yields 20 Percent, Italy Up 6 Basis Points, Portugal Up 7 Basis Points, Spain Up 27 Basis Points → Washingtons Blog
Greek 2 Year Yields 20 Percent, Italy Up 6 Basis Points, Portugal Up 7 Basis Points, Spain Up 27 Basis Points - Washingtons Blog

Wednesday, April 28, 2010

Greek 2 Year Yields 20 Percent, Italy Up 6 Basis Points, Portugal Up 7 Basis Points, Spain Up 27 Basis Points

It's not just Greece and Portugal.

As Simon Johnson reports:

This is not now about Greece (with 2 year yields reported around 20 percent today) or Portugal (up 7 basis points) or even Spain (2 year yields up 27 basis points; wake up please) or even Italy (up 6 basis points). This is no longer about an IMF package for Greece or even ring fencing other weaker eurozone economies.

This is about the fundamental structure of the eurozone, about the ability and willingness of the international community to restructure government debt in an orderly manner, about the need for currency depreciation within (or across) the eurozone. It is presumably also about shared fiscal authority within the eurozone – i.e., who will support whom and on what basis?

(In related news, Eurozone sovereign credit default swaps widened somewhat Tuesday, but tightened again after the German finance minister said that Germany will rush through a disbursement of funds to Greece.)

Standard & Poor's downgraded Spain's sovereign credit rating today from AA+ to AA, after recently slashing Greece's rating to junk and lowering Portugal's rating two notches from A+ to A-.

Ambrose Evans-Pritchard writes that there are "ominous signs of investor flight from Spain and Italy."

Spain is also suffering
more than 20% unemployment.

As this Reuters chart shows - based on information from BIS - France, Switzerland and Germany are the largest holders of Greek debt:

David Rosenberg notes:
Portugal’s stock market has traded down to a 12-month low and it’s so bad in Greece that the government has banned short selling for two months. (Hey, it worked in the once-capitalistic U.S.A. didn’t it?) We see in the NYT that Barclay’s analysts believe that Greece needs €90 billion to see them through, €40 billion for Portugal and €350 billion for Spain!That is €480 billion of refinancing help, which dwarfs the latest €45 billion EU-IMF joint aid announcement by a factor of TEN (according to Ken Rogoff, the IMF is maxed out after €200 billion)! Do euros grow on trees as fast as Bernanke-bucks? Would the ECB, modeled after the Bundesbank, ever resort to the printing press for a fiscal bailout? Where exactly is this money going to come from?


Yesterday was really as much, if not more, about Portugal than it was about Greece. Contagion risks are spreading as they were amidst the turmoil around Bear Stearns in early 2008 ...

[Spain's] combined fiscal and current deficits are the highest in the industrialized world, save for Iceland (and we know what shape it is in). The amount of debt it has to refinance in the coming year is as large as the entire Greek economy ...


If the other two major rating agencies follow S&P’s lead and cuts Greece to “junk”, then the ECB would be in a real bind for it cannot hold below-investment-grade bonds on its balance sheet. If the ECB does accept junk-rated Greek debt as collateral, then the sanctity of its balance sheet will be seriously undermined; though this ostensibly didn’t matter too much to the Fed in the name of saving the system.
Nouriel Roubini says “in a few days there might not be a eurozone for us to discuss.”

It is tempting to assume that this is just a European problem. But that might be a very erroneous assumption. See this, this and this.

And as Megan McCardle writes:
The most terrifying words I've seen written so far about the growing crisis in Greece were penned by Yves Smith yesterday: "So the whole idea that the financial crisis was over is being called into doubt. Recall that the Great Depression nadir was the sovereign debt default phase. And the EU's erratic responses (obvious hesitancy followed by finesses rather than decisive responses) is going to prove even more detrimental as the Club Med crisis grinds on."

The Great Depression was composed of two separate panics. As you can see from contemporary accounts--and I highly recommend that anyone who is interested in the Great Depression read the archives of that blog along with Benjamin Roth's diary of the Great Depression--in 1930 people thought they'd seen the worst of things.

Unfortunately, the economic conditions created by the first panic were now eating away at the foundations of financial institutions and governments, notably the failure of Creditanstalt in Austria. The Austrian government, mired in its own problems, couldn't forestall bankruptcy; though the bank was ultimately bought by a Norwegian bank, the contagion had already spread. To Germany.... It's also, ultimately, one of the reasons that we had our second banking crisis, which pushed America to the bottom of the Great Depression, and brought FDR to power here.


  1. 20%???? I don't see it here:

    Only peaked on 18.85%...

    But this is also very high, a sign of coming collapse and hyperinflation...

  2. And I'm a long follower/fan of your site.

    Always good researchs and good written articles.

    Thank you for all the efforts to inform the people and share your knowledge.



  3. Came here from a reddit post. Your info seems to vindicate how I feel about this Greek crisis. But, I don't have to tell you how the market is reacting. The bulls seems to be running the show for now, but is it all smoke and mirrors or are we being too pessimistic on recovery??


→ Thank you for contributing to the conversation by commenting. We try to read all of the comments (but don't always have the time).

→ If you write a long comment, please use paragraph breaks. Otherwise, no one will read it. Many people still won't read it, so shorter is usually better (but it's your choice).

→ The following types of comments will be deleted if we happen to see them:

-- Comments that criticize any class of people as a whole, especially when based on an attribute they don't have control over

-- Comments that explicitly call for violence

→ Because we do not read all of the comments, I am not responsible for any unlawful or distasteful comments.