Optimism that Chinese investment will squelch the spread of sovereign default contagion sent stocks shooting to their best levels of the day by the close of trading.
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If Greece is allowed to default, contagion will spread to Spain, Italy and even to France.
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Fears of a European sovereign debt default and contagion have led to indiscriminate panic-selling.
Thanks to decades of reckless spending by European welfare states, the newspapers are filled with headlines about debt, default, contagion, and bankruptcy.
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At the same time, systemic risk in Europe over the possibility of a Greek default, contagion, and even a Euro break up, helps depress multiples even further.
Greek default and contagion risks across the Eurozone periphery.
Meanwhile, in Europe, the Greek default need not cause contagion.
The eurozone has always shied away from the inevitable Greek default because of fear of contagion.
Amid recession and the contagion of a debt default, bank collapse or Greek departure from the euro, Europe's single market would be in danger.
If the euro zone had put a credible firewall around the government bonds of Italy and other troubled euro countries, a Greek default would not now be threatening contagion.
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It calculated that the euro zone would not risk the contagion that might follow a disorderly sovereign default.
DB, Societe Generale and BNP Paribas clearly own significant amounts of PIIGS debt and seem to be at risk with a restructuring or default, in addition to risks of potential wider contagion.
Contagion also spreads through the market for credit-default swaps.
It refused to countenance a default by Greece, or even debt restructuring, for fear of market contagion.
While a sovereign default in any one of these European countries would not have a lasting or consequential impact on the capital markets as a whole, the real risk here, in my opinion, is the contagion effect that could spread to other larger European economies should the default not be contained to any one or two of the smaller economies.
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So now we move on from Greek default, that inevitability, to the possible default of Portugal and Ireland (neither too damaging nor entirely necessary) to the possibilities of contagion through to Spain and Italy (neither necessary, both horrible to contemplate) and the really big question: will any and all of these countries stay in the euro?
Assuming Papandreou and his new finance minister, Evangelos Venizelos, manage to push their agenda through parliament, European policymakers are fettering over whether a debt roll over or a debt swap option will provide them with the best means to avoid a credit default and a change in credit ratings. (Read Papanderou Loses Support As Eurozone Hopes To Aver Contagion).
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