“Risk premiums of 12 euro countries beat Spain’s in May 2010”

By Julia Pastor, in Madrid | The European debt crisis is not just the result of the rescued euro zone member countries, neither a problem worsened by the two southern-Europe biggest economies, namely Spain and Italy. According to a report appeared on Wednesday in El País

“the risk premium of 12 countries out of the the 17 states adhered to the single currency has reached not only a record high, but has also beaten the level that the Spanish debt held in May 2010.”

Belgium, Austria and Slovakia are included in this group. Even France can hardly avoid the pain. Analysts forecast that the country will lose its prized AAA rating by mid 2012.

Of course, the Greek, Irish and Portuguse debt spreads relative to the German bund move wildly (for example, Greece’s spread reached on Tuesday the 2,667 basis points), while Spain and Italy are about to lose control. Their spreads touched yesterday 458 and 529 b.p, respectively. The Spanish 10-year bond yield recorded a high at 6,34%, too. The Italian yield spiked again beyond the dangerous red line of 7% on Tuesday.

As the daily Expansion  says,

“ Spain’s sovereign risk has exceeded the hypothetical point of no return, the level at which other economies had to turn to Brussels for urgent help”.

With regard to Belgium, Austria and Slovakia, El País adds:

“They have joined the debt crisis very quickly. Belgium’s risk premium beat the barrier of 300 b.p (it stood at less than 100 just a few months ago). Then it comes Slovakia, over the 200 b.p.

“The spread of Austria, an allied country of Germany’s hard line that has a similar indebtedness levels as Spain, has increased from 40 b.p. before last summer to 185 yesterday”.

Expansion also points out France’s situation, whose risk premium increased 100 b.p since August:

“the yield for French bonds in the secondary market has increased from 2.6% in August to 3.68%, because of the euro zone troubles in solving the crisis. France’s debt volume is of €1.5 trillion, over the 81% of its GDP.”

Bankinter’s analysts commented in Consenso del Mercado (CdM) that

“the correction of France’s ratings by Standard& Poor’s sparkled a lot of uncertainties, and the country could be the next caught up by the debt crisis.”

Just a few weeks ago, JP Morgan also affirmed for CdM, that

“France’s rating will be cut by mid 2012. France’s sovereing CDS price is the highest among the countries which still hold an AAA rating.”

According to Morgan Stanley, these debt spreads reached in the euro zone do not yet reflect insolvency but lack of liquidity in the financial system. On the other hand, Barclays analysts think that if the debt problem contagion goes spreading throughout the EU,

“the solution is a Quantitative Easing move by the ECB. This, or that Germany accepts the European Redemption Fund, a new proposal developed by the five wise men of the German economy (The German Council of Economic Experts) in order to refinance the European debt.”

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