After looking at the 1 year CDS charts of the European countries, I find something encouraging. Only the CDS of Greece, Ireland and Portugal are near highs. The CDS of Italy, Spain and other European countries, although they have risen lately, are below the levels of 6 months ago. I think this indicates that the problem at the moment is limited to Greece, Ireland and Portugal. These are smaller countries and if it remains limited to them then the EU and IMF should be able to manage the problem. I think this is one reason the Euro hasn’t fallen more dramatically against the dollar and the stock market has not sold of very severely. This needs to be monitored continuously, but I think this is a positive divergence that in spite of credit downgrades recently, CDS for Italy and Spain are below the level from 6 months ago.
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