Greek Fire, Part 12

With Germany refusing to eat Der Schissesammich on Greece's bailout, the game's finally up on pretending Greek Fire isn't an existential threat to the Euro.  Yesterday Greek debt was downgraded to junk status and that has now all but forced the EU's hand to act now before the Greek Fire burns the Euro to ashes.

Europe’s worsening debt crisis is intensifying pressure on policy makers to widen a bailout package beyond Greece after a cut in the nation’s rating to junk drove up borrowing costs from Italy to Portugal and Ireland.

As German Chancellor Angela Merkel delays approval of a 45 billion-euro ($59 billion) Greek rescue, the crisis is spreading. Portugal’s benchmark stock index yesterday fell the most since the aftermath of Lehman Brothers Holdings Inc.’s collapse, while the extra yield that investors demand to hold Italian and Irish debt over bunds remained near yesterday’s 10-month high.

The danger for European officials is that the fiscal turmoil which started six months ago with fudged Greek budget data will spin out of their control. As Greece waits for its euro-region partners to disburse funds, the European Union has announced no concrete plans to help other nations should aid be needed. The euro yesterday weakened to the lowest in a year.

“Policy makers need to get ahead of the curve,” Eric Fine, who manages Van’s Eck’s G-175 Strategies emerging-market hedge fund. “This is no longer a problem about Greece or Portugal, but about the euro system.”

Governments will hold a summit by around May 10 to discuss Greece, EU President Herman Van Rompuy said today in Tokyo. 

May 10 may frankly be too late.  I've been saying in this series of posts that Greece's debt problem and Europe's refusal to fix it was going to break something, and that something looks like the Euro itself.  Now the Greek Fire is indeed spreading.  The Dow took a 200 plus point hit yesterday, the Nikkei lost 2.5% and Europe is struggling with a day deep in the red this morning as well.  Tyler Durden tells us what's next as the Greek Fire spreads:

The CDS market, as always, is prophetic to the dot: after main deriskers in the past two weeks were Spain, Portugal and France, so far the spread blow out in these markets has materialized like a Swiss watch. Which is why Ambrose Evans-Pritchard better be looking at this week's DTCC data, because the credit market is flashing a bright red warning light over his favorite bankrupt country - the UK (incidentally, the week's largest net derisker, just after Goldman Sachs). Second in order of sovereign implosion - Ireland. The British Isles, at least according to CDS traders who time after time prove they have far more sense than their equity equivalents, are about to become a hotbed of credit activity, and not in a good way. The other countries that fill out the top 10 deriskers in the prior week: Brazil, Germany (yeah, failed auctions do that), Argentina (yeah, persistent threat of default does that too), Mexico (yeah, living next to a money printing terrorist does that), Ukraine, Korea, Belgium and China. 

And as things get worse in the Eurozone, that will affect the res of the world, including the US.  After all, we're not in any shape to bail out Europe either.  This one's only going to get worse, folks.  Batten down the hatches.  Greek Fire just keeps on burning.