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Market participants has become spooked with Greek contagion, especially towards Germany with some calling recent rise in German yields as part of that.
- Syriza party led government in bailout negotiation several times flashing default card, which is more of a negotiating tactic than a real possibility. However some haircut is surely a possibility, including debt restructuring. If Greece manages to survive this year, the payment burden is much lesser in years to come.
Germany is sure to lose some serious amount, should Greece choose the exit route. Germany's cost could reach as high as € 86 billion, should there be a disorderly exit.
However as of now, this is highly unlikely. Even if Greece choose to exit, Germany would be the less among the nations to worry about.
Why no disorderly exit?
- Poll indicates that Greek people who supported Syriza's rise, will not be calling for an end to Euro and would prefer a different party to negotiate for them.
- Syriza's negotiating tactics are losing popularity among Greek people, with their rating took a nose dive from 72 to just 45.5, since Euro exit has become a possibility.
- Moreover, Syriza led new government would never take Euro exit on their own shoulder, instead would call for a referendum.
Greek contagion, would affect France, Italy and Spain more severely than Germany. In fact German yields might gain against rest of the Euro zone.
Another Bazooka from European Central Bank (ECB) stands ready to be fired if needed that is OMT with unlimited bond buying capacity with conditions attached.
Recent rise in German yields from 0.049% to 0.182% has been spooking the market. Profit bookings at record level and after record drop in yield is the likely cause. As of now, yield is at 0.148. There is nothing spooky even if it moves up further. Such moves are very likely, given such a long trend and such massive move.
German yields are more vulnerable to rising inflation expectations and actual observed, rather than contagion.
