EUR

deflationary effect only seen in currency but generally there's growth there

Greek Contagion Myth Masks Real Europe Crisis

Greece sneezes and Portugal catches a cold. Portugal coughs and Spain falls ill. Spain runs a fever and Italy comes down with the flu.

Contagion, or contagion theory, is sweeping the euro zone, where Greeces debt crisis is infecting neighboring countries and threatening to make its way across the Atlantic to U.S. shores.

At least thats what were told on a daily basis. European Central Bank council member Axel Weber warned last week of grave contagion effects for countries that have adopted the euro. Greece Fuels Fears of Contagion in the U.S., trumpeted a May 6 Wall Street Journal headline.

I hate to pour cold water on that theory, but healthy countries arent susceptible to Greeces disease. The sick ones, already plagued with high debt levels and bloated state budgets, dont need a carrier. Capital flight from these countries is not evidence of contagion, said economist and author Anna Schwartz.

Of course, Schwartz said that in 1998 following the Asian financial crisis. In International Financial Crises: Myths and Realities (the Cato Journal, Vol. 17 No. 3), Schwartz punctured the notion that financial crises spread from the initial source to innocent victims. Nations are vulnerable because of their home grown economic problems, she said.

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There is no question we live in an interconnected world. Subprime mortgage defaults by homeowners in Irvine, California, infected banks in Europe and Asia, thanks to the miracle of securitization.

So yes, European banks that hold Greek debt are vulnerable to losses. The interbank lending market is showing signs of stress. And the austerity measures required in Europes peripheral countries may spill over into reduced U.S. exports. Thats not the kind of contagion we keep hearing about.

On the other hand, it would be a mistake to interpret the flight-to-quality into U.S. Treasuries last week as a sign of immunity. The U.S. is already infected with the debt virus. Its still in its incubation period.

sell

Hi Stationdealer,
Really appreciate your commentary, good to know the finer points, tks mate.

I see premiums on puts on Russian commodity companies raising....such is normally followed by oil down. Europe has been extremely generous to Russia nobody knows why Europe pays a 3 fold premium on russian nat gas ( as compared to Henry Hub spot) and why they pay them a very expensive pipeline. If Europe gets Euro blues Russia will catch much bigger trouble. I do not trade oil
but industry metals.