Bond test for Greece - and EU too

Information from WSJ (courtesy Business Week) is good to read along with testimony given by prof. Simon Johnson to Budget Committee about possible developments on European financial markets on the long run and in short time. He predicts repeat of speculative attack from 1997 on public debt - this time it won't be Asian countries but PIIGS.

Feb. 19 (Bloomberg) -- Eastern European investor confidence fell for the first time since November on concerns the waning momentum of recovery in western Europe and the Greek deficit crisis will stunt growth in the region.

An index of investor and analyst expectations for the region in the next six months fell 38.6 points to 20.5 points in February, according to a survey released today by the ZEW Center for European Economic Research and Erste Bank AG. The drop is from a record high of 59.1 points in January.

“One of the reasons for the decline in economic expectations might be the current discussions about the Greek financial situation,” Mariela Borrel, an analyst for ZEW in Mannheim, Germany, said in the statement. In addition, she cited “concerns about other European Union countries also facing budgetary difficulties.”

Eastern Europe’s recovery faltered in the fourth quarter as economic growth in Germany, a key investor and buyer of the region’s goods, unexpectedly stalled. Concern that Greece’s struggles to narrow a budget gap more than four times the EU limit will spread has also sapped investment.

The Czech economy, which exited a recession in the second quarter, shrank 0.6 percent in the fourth quarter. Bulgaria’s slump deepened to an annual 6.2 percent from 5.4 percent and Romania’s annual drop was 6.6 percent, compared with a 6 percent median estimate of nine economists in a Bloomberg survey.

The ZEW outlook dropped most for Croatia, falling 48.7 points to 11.4 followed by a 42.1 point drop for Romania to 22.3. Poland retreated the least, declining 28.5 points to 27.6, ZEW said.

The indicators reflect the difference between the percentage of analysts who have positive outlooks and those who have negative outlooks. Ratings run from a maximum 100 points to a minimum of minus 100 points.

There were couple of advices given to Greece how she should escape disaster. Some economists proposed that she would leave union for a time to devalue its own currency. Others were emphasizing necessity of budget cuts. Some economists debated whether eurozone will survive.

In that context I found that opinion very interesting

“Joining the euro is like frying an egg: once it’s fried you can’t put it back in the shell,” said Simon Ballard, a credit strategist at Royal Bank of Canada in London.