A while ago I wrote a post titled “An Italian Job” that assessed the debt situation in the EU based on two numbers: GDP and debt/GDP. The post is viewable here. I came to the conclusion that Greece didn’t really matter, as it’s figures were insignificant compared to some other EU nations. In reality, Greece only has a few hundred billin (pronounced billin like I’m from the south) which is entirely within the bailout boundaries of larger nations such as China or USA and large monetary institutions like the IMF. Also, remember that Germany has already declared their banks safe.
Thus, the key question is whether or not a Greek default would lead to a Spanish or an Italian default. If Spain or Italy default, game over. If Greece defaults, though, the immediate reaction will most likely be much more serious than the reality of the situation.
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Italy is the real issue. The BTP market is the third largest bond market in the world after the US and Japan, it is ironically significantly larger than Germany’s Bund issuance. If BTP yields creep up past the recent highs the endgame in the Eurozone is going to be accelerated significantly.
Good post.
I think it must also be considered that Spain’s debt is front loaded, so their immediate cash flow is the main problem.