As Greece fears continue to roil the markets – along with a dose of concern about Portugal and other euro zone nations – we thought we’d dig a bit deeper into what exactly is at stake.
Markets clearly are pushing for a solution on Greece. Yet all that seems to be emanating from European capitals are more words. In the meantime, real concerns about the fate of European banks are piling up.
“The bailout cost is growing by the minute like some rigged meter in a NYC taxi cab or the U.S. debt clock in Union Square,” writes David Gilmore, a partner at Foreign Exchange Analytics. Gilmore penned a piece that that caught our attention here at Marketbeat, laying out the high stakes on the table now:
“For some in the market the Greek debt crisis has always been about the European banking system…collateralized by ‘risk-free’ sovereign paper from some less than ‘risk-free’ sovereign credits. Tons of debt issued by Greece, Spain, Portugal (not too different from AAA rates subprime MBS) and yes Italy support the banking system in the Euro Zone as collateral for borrowing from the ECB and from other banks, as well as a place to capture yield. Well when markets discern that ‘risk-free’ sovereign debt is not really “risk-free” the inevitable run on weak credits starts. And like the subprime-driven run on banks in 2008, officials only add to downside risk as they assume the problem is contained.”
Gilmore says financial markets – which pushed the euro to a 12-month low Tuesday afternoon below $1.32 after S&P slashed Greece’s credit rating to junk and sliced Portugal two notches – are agitating for an extreme solution to the problems surrounding the “Club Med” countries....MORE
Contagion. It seems to be the word of the moment judging from some of the market notes we’ve been getting here at MarketBeat central.
Just as a refresher, contagion is what we’re seeing over in Europe today. It describes a sort of like a domino theory of how market fear spreads. And it seems to be gathering strength from ongoing uncertainty over exactly when and how Greece would be bailed out by its more affluent neighbors. Here are some of the thoughts we’ve been reading lately.
Ticonderoga Securities: “Fear of peripheral contagion today is taking back equity gains earned in Europe yesterday when the travails of the bond market related to failure of arriving at agreement by authorities with a defined mechanism to help resolve the Greek fiscal and debt crisis was little felt by the bourses of Europe.”
Nomura Securities: “The Greek situation [is] now looking like it is morphing into some sort of contagion risk.”>>>MORE