Monday, January 30, 2012

Once Greek debt is dealt with, which of the PIIGS will be next?

In the not so distant future there will be a resolution of some kind in the Greece government debt crisis!

As the EU leaders meet in Brussels for the first summit of 2012, the Greece debt restructuring is apparently reaching an endgame as private investors seem to be on board with a 3-4% coupon and a 30-year maturity.

Once the debt swap is completed Greece will be provided with another round of bailouts from the EU and IMF totaling 130 billion euros, if it meets certain other conditions including budgetary oversight.

So assuming that Greece and the EU buy some time until another crisis in that country reaches a critical stage, will all then be well in Euro-land?

Not exactly! Remember the PIIGS (Portugal, Ireland, Italy, Greece and Spain)?

Unfortunately Greece is only one sick domino in a line of sick domino's with the next one to potentially require a debt restructuring being Portugal.

The anecdotal evidence? The Portugal 10-year bond yield has passed 15% (see chart below) and the cost of Portugal credit default swaps (CDS) is at a record high as well.

Conclusion? The EU debt crisis is unfortunately a story whose end will not be reached for some time to come!

(click to enlarge)

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