Greek debt concerns intensified over the past month, leaving the euro with a heightened risk premium. While an unsustainable Greek fiscal policy should not be a major concern for the eurozone as a whole (Greece only constitutes some 2-3% of total eurozone GDP) the situation has escalated to a point where it has become at least partly systemic. Market focus has turned to the other PIIGS countries (Portugal, Ireland, Italy, Greece and Spain), which have seen government bond spreads widen alongside already elevated Greek spreads. The result has been a broad-based euro sell-off leaving the single currency with a risk premium in excess of 4% (as estimated by our short-term financial model). EUR/USD has temporarily traded below 1.36 and the euro ended the week lower against all G10 currencies, but the Japanese yen (see the table to the right).
Sverre Holbek & Kasper Kirkegaard, Senior Analyst’s, Danske Bank
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