On Thursday Spain had to pay 6.975% interest to borrow money at 10 years: a spread of 480bp against the German rate. It is the highest rate Spain has had to pay since it became part of the euro zone. However, analysts at JP Morgan remarked that France’s differential compared to Germany’s
“is not only the highest since the euro exists, but the highest of all time.”
On the other hand, Citibank quoted the British newspaper The Telegraph Telegraph, which published reports on how many Asian investors are in the process of ridding themselves of their German debt positions due to the deterioration of the scenario. As an example, the Telegraph compares the German debt spread to that of others such as Sweden, which has risen to 20pb, a historical level. The British or the Danish debts, though, have recently reduced their spread against the bund.
According to JP Morgan,
“Europe can not exist without an ECB that acts as last resort lender. This is what happens when nations do not have access to their own central bank. A risk premium is established based on the inability of the Central Bank monetarise debt.
“Germany can’t either, and it is because of this that its CDS at 10yr is 109 bp, when the US’s is at 67bp. What would be the interest rate for the UK, US or Japan, if they did not have that ability? Germany, one day, will end up giving in or the European Monetary Union will split up.”