With Southern Europe getting so much of the blame for the continent’s financial crisis, it is refreshing to see someone highlight the other side of the coin. That’s just what Joshua Rosner, managing director of Graham Fisher & Co., did in testimony on Thursday. Asked to discuss the potential risk to U.S. taxpayers of the ongoing political battle over a frayed monetary union, Fisher began his remarks by debunking the reigning narratives being used to describe the crisis:
Any lingering illusion that the European crisis could be contained to so-called peripheral countries with high debt levels was shattered on Wednesday. German government bonds, which had thus far been seen as a safe-haven, slumped sharply after investors shunned the country’s auction of new 10-year debt.
The latest round of reports on the U.S. economy, while hardly the ringing endorsement of a robust recovery, have been a bit better overall. Jobless claims, while still high, have fallen to a seven-month low of 388,000. Industrial output, meanwhile, posted its largest increase since July as factory and mining production expanded strongly.
This week’s evaporation of confidence in the euro zone’s biggest government debt market — Italy’s 1.6 trillion euros of bonds and bills and the world’s third biggest — has opened a Pandora’s Box that may now force investors to consider the possibility of a mega sovereign debt default or writedown and, or maybe as a result of, a euro zone collapse.
from Global Investing:
No longer an idle "what if" game, investors are actively debating the chance of a breakup of the euro as a creditor strike in the zone's largest government bond market sends Italian debt yields into the stratosphere -- or at least beyond the circa 7% levels where government funding is seen as sustainable over time. Emergency funding for Italy, along the lines of bailouts for Greece, Ireland and Portugal over the past two years, may now be needed but no one's sure there's enough money available -- in large part due to Germany's refusal to contemplate either a bigger bailout fund or open-ended debt purchases from the European Central Bank as a lender of last resort.
from Global Investing:
Whether or not it's likely or even a good idea, talk of Greece leaving the euro is no longer taboo in either financial or political circles. What is more, anxiety over the future of the single currency has reached such a pitch since the infection of the giant Italian bond market that there are many investors talking openly of an unraveling of the entire bloc. But against such an amplified "tail risk", it's remarkable how stable world financial markets have been over the past few turbulent weeks -- at least outside the ailing sovereign debt markets in question.