Marshall Auerback on BNN: "Euro to Fail?" Rebecca Wilder | April 23, 2010 9:43 am US/Global Economics Morning AB link: Marshall Auerback on BNN: (click on picture for video link; it takes a bit to load) Tags: euro; bond; debt; Eurozone Comments (3) | Digg Facebook Twitter |
Don’t see it happening. To much has been invested in it on all levels. Europe has the money to muddle through and in the end it will probably mean a closer union, not a break up. Growth will be weak, but Europe doesn’t really need much growth since it doesn’t and can’t play the superpower game anyhow.
Greece is in big trouble, its bond curve is inverted and they are running over 12% interest. With no appetite for any belt tightening at all. IMF and Eurozone partners will obviously be forking over cash to keep Greece solvent.
But its not looking good (even with the emergency funds) and Portugal shows every sign of being next.
I also don’t see the Euro failing. Just too much money around and too many people invested in the Euro as the sign of European unity. (I bet the Brits are sure glad they didn’t join the Euro though…)
Islam will change
for what its worth, from zero hedge: Greek Cash-CDS Negative Basis Spread Hits Record, CDS Implies 33% Chance Of Eurozone Collapse – Another glaring example of how broken the Greek funding market is, is the record negative basis spread in Greek 5 Year Cash-CDS, which as of today is almost -200 bps (see below). As a reminder, the basis trade’s massive inversion in the days after the Lehman collapse is among the primary reasons for the implosion of Merrill, and the spectacular blow up of Deutsche’s prop trading desk. What the primary implication of this observation is that the market is essentially saying that the imminent Greek bankruptcy will likely be in the form of a voluntary restructuring, which will not trigger CDS, although that is not the full story. The risk/return scenario, as Credit Trader points out, is assuming a 200bps upside to bond spreads, or a 400 bps downside to an inline level with the rest of Europe, in essence a 33% chance of a free fall bankruptcy, whose implication would most likely be the collapse of the Eurozone, as the EMU would be defunct if a member country escalates into an uncontrollable bankruptcy. (dont ask me to explain)