"Who the hell is buying European debt?"

From Mathbabe:

I’m a bit confused about the “successful” European sovereign debt auctions we’ve been hearing about lately.

If I’m a European bank, say in Italy, Spain, or Portugal, or maybe even France, then about 10 months ago or so I’d be buying all the sovereign debt of my own country that I can get or that my country wants me to, because I’d figure, hey we’re in the same boat- if my country defaults then we’re going down, probably exorcised from the Euro zone.

But nowadays, because of Greece’s example, it seems increasingly likely that a country could default on its bonds, and if orderly (and “voluntary”), the country gets to stay in the Euro zone and the banks get to live on- if they can.

So if I’m a European bank now in a peripheral country, I’m going to try to stay solvent in the case of my country’s default. And I don’t even need to be completely solvent, I just need to be more solvent than most of the other banks in my country, because, especially if the Euro zone does stay intact, they probably won’t allow all the banks to fail, but they might easily let the weakest banks fail....MORE