Wall Street Journal
June 21, 2011
It took the biggest one-day point drop in Dow Jones Industrial Average history to change Congress's mind about voting down the $700 billion TARP bailout program in 2008. What will it take to get Europe to truly address the Greek problem? With the latest talks inconclusive, markets may be poised to ratchet up the pressure even further in the summer months.
Relief after Angela Merkel's decision to backtrack on Germany's push for private-sector participation in any new Greek deal was short-lived. Friday, European markets welcomed the German chancellor's move. Monday, that evaporated after euro-zone finance ministers pushed off any firm decisions until July both on near-term funding for Greece—which needs a €12 billion ($17 billion) loan installment to be paid out in early July to avoid default on €6.5 billion of interest and principal payments—and a longer-term package. That markets were so swift to take a negative view is in itself a sign of deepening concern.
While politicians argue, market participants are getting ahead of the potential next stage in the European debt crisis. U.S. money-market funds have been reducing their exposure to euro-zone bank debt. Moody's may cut Italy's credit rating in part because of market tensions—read "contagion"—that mean the ratings firm isn't sure demand for the sovereign's debt can be relied upon at current yields. That sets a worrying precedent that could apply to a number of countries. Spanish, Italian and Belgian bond yields have risen sharply versus Germany's in recent weeks. There are even signs investors are distinguishing between the stronger sovereigns in Europe. The spread between French and German five-year bond yields has widened sharply, to 0.42 percentage point from 0.22 early in April, according to Tradeweb.
More
No comments:
Post a Comment