New York Times
December 2, 2010
The big question of the week in Europe is deceptively simple — will any countries that share the euro as their currency default on their government or bank debts in the foreseeable future? The answer to this question determines how you regard bonds from Portugal, Spain, Italy, Belgium and, perhaps, others, as well.
This question is not as simple as it seems. Answering it involves taking a view on three intricate issues: What exactly is the current euro-zone policy on bailouts, can big euro-zone countries really be bailed out if needed and what happens to the politics of these countries and of the euro zone as a whole, as pressure from the financial markets mounts?
The prevailing consensus — and the official spin — is that European leaders backed away last weekend from the German proposal to impose losses on creditors as an automatic condition of future bailouts, starting in 2013. In this view, the markets should calm (and are likely to) as there is no immediate prospect of any kind of sovereign default or, as the more polite like to say, a “reprofiling” of debt, including the obligations of big banks.
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