Screws tightening

On top of growing Spanish concerns and just before the EC, IMF and ECB make another trip to Greece, the German Vice Chancellor said this on Greece yesterday, “What’s emerging is that Greece will probably not be able to fulfill its conditions. What is clear: if Greece doesn’t fulfill those conditions, then there can be no more payments.” He also said that Greece leaving the euro “has long ago lost its terror.” Germany’s Der Spiegel is reporting that Greece will get no more money than has been agreed to and the IMF “won’t take part in any additional financing for Greece.” From the perspective of its creditors, particularly the Germans, the moment of ‘enough is enough’ is about to be reached with Greece. In Spain, a newspaper there said over the weekend that it’s not just going to be Valencia asking for government help but 6 additional regions too. Spain’s 2 yr yield at 6.56%, up 80 bps on the day, is now above Italy’s 10 yr yield. Also, the EU statement on Friday on the Spanish bank bailout is not helping, saying “The Spanish government will retain the full responsibility of the financial assistance,” thus not severing the sovereign from the banks. In the sprint to safety, new bond yield lows are being seen in the UK, Germany, and US.

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