The Greek Debt Crisis

BarroMetrics Views: The Greek Debt Crisis

At time of writing, the Greek Parliament is debating whether to pass the austerity bill.

And yet more delay in this crisis……

But the Greek delays have bought time – time that banks have used to restructure debt. Foreign banks have reduced their exposure by around 60%. Moreover, within Greece itself, there is contingency preparation for a Greek withdrawal. For example, there are plans for a return to the Drachma.

So while the threat to banks has been reduced, the question will be what will happen to the 10-year rates in Italy, Portugal and Spain? Figure 1 shows the rates as at Friday, February 10.  We see that rates in Spain and Portugal have been dropping while the Italian rates have been going sideways.

The rate response to a Greek failure to pass the austerity bill (if it happens) will be what I’ll be focusing:

  • a muted response will probably bring higher  S&P prices;
  • a sharp rise will bring lower S&P prices.

10-year-rates.png

Figure 1

1 thought on “The Greek Debt Crisis”

  1. Hi Ray,
    Aren’t the bondholders covered by insurance in the event of default?

    Please enlightened us why Dallara is so “voluntarily” being so fearful and submissive to German Chancellor Angela Merkel and the political leaders to consent to a 50 (or more) percent cut in the face value of Greek bond holdings?

    Is there an economic Gestapo in German? 🙂

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