Sovereign bond yields in Portugal, Ireland, Greece and Spain continue to move higher and have shown no sign of reversing. Portugal is now well above the 7% threshold on a 10 year bond which was the breaking point for Greece and Ireland to request aid. Spain although in the 5% range has not come down and only 150 basis points away from the threshold as well. Just like the current global protests are not a Middle East "problem," sovereign debt is not a Greek or Irish "problem." In fact in the bailout negotiations it is arguable that the debtor has more negotiating power over the creditor for the sheer size of the exposure.
As of December 2009 total EU debt exposure to Spain, Ireland, Greece and Portugal was $1.58 trillion euro (per the Bank for International Settlements). Of that France has $493 billion euro and Germany $465 billion euro in exposure. So when you hear mention of a Greek restructure or default (they've spent about half their existence in default by the way) you begin to see how desperate the EU is to push back on the taxpayer within the country receiving aid.
PIIGS bailouts are truly about bailing out Germany and France. If Ireland for example pushes back to restructure their debt German and French banks will take a massive hit to their capital. Similar to the 2008 affects of subprime in the US banking system interbank lending, commercial paper and other credit facilities within the EU could follow a similar route.
Submitted by Macro Story. To read more, please visit - MacroStory.com
