Expectations for Greece’s departure from the euro are still low – but Capital Economics argues calm is unlikely to lastAre markets too sanguine about contagion from Greece? The short answer is yes, says thinktank Capital Economics, which argues that the calm is unlikely to last. That verdict seems correct. It is bizarre that bond yields across the eurozone, apart from Greece’s, continue to hug Germany’s. Spanish 10-year yields are 1.4% even as the anti-austerity party Podemos, which wants a debt restructuring, makes the running in opinion polls.Capital Economics offers a few reasons why markets might be relaxed before concluding that bond prices are still wrong. First, expectations for Grexit, or Greece’s departure from the euro, are still low. Second, Grexit is deemed less risky than in the past because the European Central Bank has greater crisis-fighting powers than in 2012. Third, even Portugal’s position is not as dire as Greece’s and cheaper oil prices may give everybody a lift. Continue reading...
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