The Euro Crisis Is Back
If there's one more graph you need to understand the Euro crisis which is as informative as the bond yield spreads on European debt, it's the Intrade security which estimates the probability of at least least one country announcing its intention to leave the Eurozone by the end of this year.The pattern over the last few months is painfully evident -- it looks like a light switch flicking on and off. Greece's disastrous May election turned on the crisis switch; its "re-do" in June and the formation of a government managed to calm markets.
Here we go again. The crisis switch is back on, and the Intrade security is flying towards 40 percent chance of exit by the end of this year.
It's worth noting that Intrade offers similar securities predicting the probability of a Eurozone exit by the end of 2013 and 2014. Those rose in May amid the Greece chaos, but they did not fall with the June fixe.
What that should tell us is that markets are pricing in a worsening of the Eurozone crisis in the near term -- and correspondingly doubting the capacity of the ECB and other European leaders to push off the time of reckoning for another year or two.
It's time to start asking if Spain is "too big to fail." The Euro crisis is back.