A Credible Recapitalization of Spanish Banks Is Now Imperative
A credible recapitalization of the Spanish banks is now a necessary, though not sufficient, condition to stabilize markets. But there is disagreement about how to achieve this—increasing the risk of a damaging standoff and further volatility in European sovereign-debt markets.
read moreEuro-Area Leaders Need to Focus on More Pressing Issues
A surprising amount of common ground was reached at last week’s informal meeting of European Union leaders—but there wasn’t agreement on joint issuance of Eurobonds.
read moreWhat Will Happen if Greece Leaves the Euro Area?
With party leaders failing to set aside their differences, Greece is set to hold another general election on June 17. The outcome is hard to predict, but one thing is clear: a Greek exit from the euro area is now a possibility that investors need to take very seriously.
read moreRules of the Game Have Changed for Euro High-Yield Investors
The European sovereign debt crisis has changed the rules of the game for euro high-yield investors. Fixed-income managers are being challenged to think differently about both the risks and the opportunity set.
read moreSpanish Jitters Reveal Euro’s Fragility
Yields on 10-year Spanish government bonds have risen by 100 basis points since the beginning of March. With attention now switching back to Spain, it seems the brief hope provided by the European Central Bank’s massive liquidity injections has proved to be a false dawn. Why has confidence evaporated so quickly?
read moreCould German Inflation Help the Euro Area to Rebalance?
Euro-area data have surprised on the upside in the opening weeks of 2012. This is particularly true in Germany, where there has been a strong bounce in key cyclical indicators and genuine signs of expansion. But could Germany be getting too much of a good thing?
read moreLatest Deal Postpones Greece’s Day of Reckoning
The second rescue package for Greece that was agreed upon yesterday by euro-area finance ministers should reduce the probability of a near-term Greek bankruptcy and possible euro exit. But substantial implementation risks remain and the latest analysis by the country’s own lenders suggests that more needs to be done in the medium term.
read morePrivate Sector Involvement Is Unlikely in Second Portuguese Bailout
With 10-year Portuguese bond yields above 14% (see Display), the market is suggesting that Portugal will soon need another bailout from its euro-area partners. While we share the market’s skepticism about the sustainability of Portugal’s public sector finances, we doubt that policymakers at this stage will seek to impose losses on private sector creditors, as [...]
read moreEurope’s Fiscal Compact: A Very Modest Step Forward
The fiscal compact that the leaders of most European Union countries agreed on last week to bring some order to the euro area was broadly in line with expectations. While it may eventually be seen as a first step towards true fiscal union, it is more like a pistol than the long-awaited big bazooka.
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