Remember 2007, and 2008, credit spreads, the real cost of borrowing anywhere spiked. A year ago with the meltdown in full swing, these credit spreads were all the talk. And we saw a similar reaction with the recent Dubai news. But Europe has its own problems. The folks at ZeroHedge present the following. Some of these problems remain mostly hidden from MSM, but the potential for default risk as measured by credit spreads is suggesting things continue to deteriorate. Irish and Greek markets have plunged rather steadily of late. The news is rife with Spain's real estate challenges. Britain is not much better off. Their exposure to another set of risky assets through RBS has given Gordon Brown and Alistair Darling their second Bevis-Butthead episode, the first being the sale of Britain's reserve gold at under $300/oz.
With Contagion Risk Back On The Table, Will PIIGS (Spreads) Fly?
The chart below, courtesy of CreditTrader, demonstrates that the sovereign credit spread between BRICs and PIIGS (Portugal, Italy, Ireland, Greece and Spain: the Eurozone's weakest legacy links) continues converging. The market is now fully expecting the next risk flaring event to occur deep within the bowels of Europe. And with the ECB's head stuck firmly up its rear end, and in fact threatening it is preparing to raise rates, the Stardust has started a line on the number of months before the break up of the European Union experiment becomes a fact.
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