Yes, THAT bad

Ireland 5 year CDS

This analysis just posted by EuroIntelligence:

The same pattern again. The EU agrees a pact, and the markets are panicking. This time it took them only a few hours. The EU’s credibility is sinking with each agreement.

We are now fast approach default time. Yields have been rising in Spain and even Italy yesterday afternoon, and the situation continued to deteriorate overnight. We at Eurointelligence consider a default of Greece, Ireland, and Portugal a done deal. The question is only now whether Spain can scrape through.

Since the higher interest rates themselves have a massively adverse impact on the situation, the probability of a Spanish default/restructuring are increasing by the hour. Italy and Belgium have also made it on the Richter scale of investors – and there are extreme external scenarios under which the solvency of both countries could be also be questioned.

Paul Krugman, meanwhile, puts it like this:

It’s hard to escape the sense that European policy makers are just completely out of their depth. They know how to deal with liquidity problems, but they cannot come to grips with the reality that this requires more than buying a bit more time. It’s as if we’re having the following dialogue:

“Ireland really can’t afford to pay these debts.”

“Here’s a credit line!”

“No, really, we just can’t afford to pay.”

“Here’s a credit line!”

It really is like watching a car wreck.