While the extra yield investors demand to hold Spanish bonds instead of benchmark German debt has widened to 151 basis points from 85 in March, it’s still well below the 650 basis points seen in 2012, when Greece was last flirting with bankruptcy. To investors, that suggests the chances of contagion to the rest of Europe have diminished.
“Greece might be symbolically important for Europe but it’s no financial Lehman,” said Stephen Jen, managing partner of SLJ Macro Partners LLP in London. “The impact of default or exit will be bad on Greece, but any contagion will be limited. The European Central Bank is printing money, yields are still low, and the economy is experiencing a cyclical rebound.”
Currency markets also signal optimism about the future of the monetary union, with the euro strengthening more than 2 percent against a basket of its developed-market peers over the past month. All this as the latest meeting of regional finance officials broke up without reaching a deal on Greek aid, forcing leaders to call for an emergency summit on Monday.