The tipping point in the eurozone crisis: Who's next over the edge?
Markets get ahead of events. It's what investors are programmed to do. If you think there is a risk of losing money tomorrow you sell today, rather than waiting for it to happen.
This dynamic has been on display in the eurozone crisis. Indeed, it has been driving events. In May 2010 Greece had to be rescued. Ireland followed in November 2010. Then Portugal in May 2011.
But there were signs of severe stress in markets long before they collapsed. The interest rate on Greek, Irish and Portuguese bonds all breached 7 per cent in trading in the weeks and months before they were bailed out. Spanish and Italian bonds are now trading perilously close to that level, with Spain on 6.6 per cent and Italy on 6 per cent.
The credit insurance market is also a good place to look for indications of looming breakdown. The Credit Default Swap (CDS) rate on Irish bonds hit 6.07 per cent before the November 2010 bailout. That means it cost you $607,000 per year to ensure $10m of Irish debt. The CDS on Portuguese debt hit 6.25 per cent before that country went under last May. Greece's CDS hit similar levels before its May 2010 bailout. Today, the rate of insuring Spanish debt is 5.9 per cent, while the Italian rateis 5.5 per cent.
Investors seem to be betting that those nations are likely to slip over the brink in the coming months. Without dramatic action from policymakers to restore confidence, that may become a self-fulfilling prophecy.
- 1 How the language you speak changes your view of the world
- 3 Italian police 'reveal' what Jesus looked like as a young boy
- 5 YouTube social experiment shows just how easy it is to kidnap a child
How the language you speak changes your view of the world
'Fire at every person you see': Israeli soldiers reveal they were ordered to shoot to kill in Gaza – even if the targets may have been civilians
Italian police 'reveal' what Jesus looked like as a young boy
First-time buyers in London 'need to earn at least £77,000'
General Election 2015: Photographic history of Bullingdon Club tracked down - including new picture of David Cameron in his finery
In defence of liberal democracy
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
Competitive (DOE): Guru Careers: We are looking for an ambitious and adaptable...
£30 - 40k (DOE) + Benefits: Guru Careers: We are seeking a Solutions Consultan...
£30 - 35k + Benefits: Guru Careers: We are seeking a Software Developer (JavaS...
£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...