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Depends entirely on what you define as the problem. What causes the crisis is the policy straitjacket and the perception that there is a crisis. Everything else is incidental.
If the financial markets suddenly decided that Austria or the Netherlands could be squeezed they too would have a funding crisis.
by generic on Sat May 15th, 2010 at 02:02:19 PM EST
[ Parent ]
Trichet is on the record claiming that the problem is not one of speculative attack but of "market failure".
Jean-Claude Trichet vergleicht die Situation der Euro-Staaten zum Ende vergangener Woche mit der Zeit kurz nach dem Ausbruch der Finanzkrise: "Die Märkte funktionierten nicht mehr, es war fast wie nach der Lehman-Pleite im September 2008."
Again either Trichet or Spiegel date the start of the financial crisis to Lehman's failure in September 2008, instead of July 2007. It boggles the mind that everyone has forgotten how liquidity completely dried up in the interbank money market for most of the month of August of 2007.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 02:07:11 PM EST
[ Parent ]
Which countries are most vulnerable to a market run?

There are two considerations: Debt to GDP ratio and country size. Here's a picture of the Eurozone:

The diagonal lines are at 75%, 60% and 50% Debt-to-GDP ratio. 75% and 50% are the 1st and 3rd quartiles of the Eurozone, and 60% is the well-known Growth and Stability (suicide) Pact threshold.

Smaller countries are most vulnerable to a market run because it take less capital at risk to manipulate their debt market. Countries with a higher Debt-to-GDP ratio are also most vulnerable because the threat of default can be talked up more credibly.

It looks to me like Belgium and Portugal are next after Greece. Italy is an attractive target, but too large. Austria, the Netherlands and Ireland would be a second tier, of which Ireland has already capitulated and both bailed out their financial sector and engaged in "model" fiscal austerity.

Maybe looking at deficit would make Spain look more vulnerable, but on Debt and GDP, it is only a 3rd tier prey for the wolfpack.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 07:19:07 PM EST
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Eh. We all know perfectly well that the economic indicators have nothing to do with it, nevermind the economic reality.

There are three conditions that must be met to qualify as a target:

  • You must be big enough to be worth going after - so Malta and Cypern are probably safe.

  • You must not be big enough to suffer from imperial phantom limb pain - that might make you cut the banksters off at the knees, and we can't have that.

  • You must be populated by brown people or Russians.

Any country that meets those three criteria is at risk of being attacked by the piranhas. Any country that does not is (probably) safe, unless they do something outrageously, Iceland-level stupid.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 15th, 2010 at 07:40:49 PM EST
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