Strange days in the sovereign risk market. Here is the cost of 5-year credit protection for a handful of jurisdictions:

And here is the recent performance of a half dozen developed countries:

Cost of Credit Protection in Basis Points above LIBOR

With the black hole of Treasury borrowing crushing global demand, the divergence among sovereigns is going to get much worse. Weaker EC countries with enormous public debt and dependence upon the EC trough are the likeliest victims. Iceland demonstrated that countries can go bankrupt.

This week’s four-day riot in Greece shows how fragile social peace can be. Greece is the only country in the world that lives entirely from real estate. The average Greek, reports a university professor in Athens, owns six parcels of property, because the few remaining Greeks have inherited real property all over the country. That is why an Athens taxi driver can afford a three-month beach vacation. German and other tourists buy or rent some of his properties, and he spends his vacation in one of them. The real estate crash is devastating for Greece. Those who were left out, the gangs of unemployed kids who haunted downtown districts in hip-hop attire, lost their patience last week and rioted.

Greece actually widened faster than the EM CDX Index:

Expect further widening in sovereign spreads and more social dislocation in the weaker EC countries.

This entry was posted on Thursday, December 11th, 2008 at 9:52 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.