Sunday, May 2, 2010

Euroland crisis in graphics

The travails of the Greek economy resembles a Hellenic tragedy and, as Martin Feldstein recently wrote, default (or "restructuring") looks inevitable...



The 10 year Portugese bond yields have risen steeply, indicating that Portugal may be next on line to Greece ...



In a reflection of the challenges faced by Italy, the spread between Italian and German bonds have widened sharply...



Spain is the other big concern, as reflected in the steep increase in CDS spreads...



The surge in CDS spreads of Spanish and Portugese banks are a reflection of the increasing probability of a haircut for their debt holders...



This excellent graphic illustrates how heavily exposed German, French and British banks are to Greek, Italian, Spanish and Irish debts. And Greece looks positively puny in comparison to Spain, Italy or even Ireland.



See more graphics on the impossible situation facing Greece in restructuring its debts without generous support from Euroland members and IMF. See also this debt map of Europe.

Unfortunately, the uncertainty surrounding the resolve of Euroland members, especially Germany and France, to restructure Greece's debt has only served to accelerate the steep decline in market confidence on Greek debt. With every passing day, as the cost of insuring Greek debts increases, the prospects of successfully restructuring its national debt recedes. And even more damagingly, it may have also triggered off the ongoing runs on the debts of others on the margin like Portugal, Spain and Italy.

All CDS spreads are calculated based on insuring five year debts.

Update 1 (6/6/2010)

The graphic shows that foreign banks and other financial companies have lent nearly $2.6 trillion to public and private institutions in Greece, Spain and Portugal.

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