Thursday, August 04, 2011

European Commission President: Crisis no longer contained to periphery

by Calculated Risk on 8/04/2011 01:02:00 PM

Admitting the obvious ... from the WSJ: Letter from the President of the European Commission José Manuel Barroso

Developments in the sovereign bond markets of Italy, Spain and other euro area Member States are a cause of deep concern ... they reflect a growing scepticism among investors about the systemic capacity of the euro area to respond to the evolving crisis.
The 21st of July bold decisions on the Greek package and the increased flexibility of the EFSF (precautionary use, recapitalisation of banks and intervention in secondary bond markets), are not having their intended effect on the markets.
[I]t is clear that we are no longer managing a crisis just in the euro-area periphery. ... We need also to consider how to further improve the effectiveness of both the EFSF and the ESM in order to address the current contagion.
I would like to call on you to accelerate the approval procedures for the
implementation of these decisions so as to make the EFSF enhancements operational very soon.
Here is a graph of the 10 year spread (Italy to Germany) from Bloomberg. And for Spain to Germany. The Italian spread is at a record 389.5, the Spanish spread is at are record 398.5. The race is on ...

Here are the links for bond yields for several countries (source: Bloomberg):
Greece2 Year5 Year10 Year
Portugal2 Year5 Year10 Year
Ireland2 Year5 Year10 Year
Spain2 Year5 Year10 Year
Italy2 Year5 Year10 Year
Belgium2 Year5 Year10 Year
France2 Year5 Year10 Year
Germany2 Year5 Year10 Year