Whilst there seems to be almost too much discussion on a PSI deal, I still firmly believe that the wont be a messy default. The consequences of a disorderly default are simply too catastrophic for the financial markets to tolerate, so much so that the EMU won’t let it happen. I also believe that this is unlikely to be the last restructuring Greece undertakes, and that if the debt talks prove successful they could be used as a template for others to follow rather than contain the crisis.
Portugal is a clear front runner to need more money next and the market is pricing in as its yield spreads over German ones are at record highs, also with Portuguese CDS’s moon bound in recent weeks. Portugal’s economic outlook is swiftly deteriorating, in the later part of last year Portugal’s 2012 GDP predictions went from 0.8% to -3.5%. This has spooked a lot of investors and they are now losing whatever faith they had that the Portuguese government would be able to control their growing indebtedness despite what austerities measures they used.
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