The next blow-up?

blowupWhile the Dubai debacle seems to be blowing over the markets with little ill effect, the goings on in Greece and the possible implications upon the EU appear to be still gathering some steam.  Pictured below is a table of the credit default swaps on sovereign debt.  The cost  of insuring against a Greek default continues to rise (up 12.1% just in the last day), and now Austria appears to be on the rise.  (Austria is one of those countries where the size of the banks dwarfs the economy and those banks are saddled with a lot of mortgage debt).  It’s still about three times more costly to insure against a Greek default than an Austrian debt, but this bears watching.

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While Greece (absolute level) and Austria (% change) stand out in this report, it’s important to note that the five wideners are all members of the European Union, and it might be that countries in the EU can’t afford to abide by the EU’s prescription for fiscal discipline.  That potential appears to be weighing mightily on the performance of the Euro, which is shown below, having violated the trendline in place since February.

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