Credit Situation In Europe Continues

The credit concerns in Europe continued over the night and sparked selling. Greece and a number of other smaller countries are running huge deficits and with extremely high unemployment levels, the default risk is high. The European Central Bank said that it will not bail countries out – but we will believe it when we see it happen of course. Here’s a chart of the default risk of different countries.

If they start to fall one by one, a domino effect could rattle the entire EU. Conditions will have to worsen over many months for this to happen. However, the first warning sign emerged last week when Greek bonds instantly priced in a 50 basis point risk premium. It will be difficult for these countries to raise capital.