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Greece’s chance of default in the next five years has soared to 98 percent as Prime Minister George Papandreou fails to reassure international investors that his country can survive the euro-region crisis.
“Everyone’s pricing in a pretty near-term default and I think it’ll be a hard event,” said Peter Tchir, founder of hedge fund TF Market Advisors in New York. “Clearly this austerity plan is not working.”
It now costs a record $5.8 million upfront and $100,000 annually to insure $10 million of Greek debt for five years using credit-default swaps, up from $5.5 million in advance Sept. 9, according to CMA.
Papandreou’s promises to adhere to deficit targets that are conditions of the European Union and International Monetary Fund’s bailout were undermined by data showing Greece’s budget gap widened 22 percent in the first eight months of the year. The nation’s two-year note yield climbed toward 70 percent, while its stock market has plummeted by a third in the past seven weeks.
The risk of contagion beyond Greece pushed sovereign credit-default swap prices to record highs across the euro region. European bank debt risk also rose to the highest ever amid speculation French lenders will be downgraded because of their holdings of Greek bonds....
“The contagion impact of a default will be severe, because next in the firing line will be Italy, Spain and it will take in the whole of the European banking sector too,” Suki Mann, a strategist at Societe Generale SA in London, wrote in a note. “This trio are already under intense pressure, but it will get much worse.”
Credit-default swaps on Portugal, Italy and France surged to records, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Portugal jumped 79 basis points to 1,213, Italy rose 40 basis points to 503 and France was up 11 at 189.