Over the past few days the risk premium for Portugal, Italy, Ireland, Greece and Spain (The PIIGS) has fallen sort of dramatically and the Euro has risen to about 1,33. What are the underlying factors behind this?
Just looking at the Italian 10 year, it seems to be in a channel since early to mid Nov., so the fact that you might see sudden rises or drops within that channel doesn’t seem too surprising.
If on the other hand you’re asking why the steady drop since Nov., I would imagine that’s the result of reduced uncertainty about the future of the Euro.
Yeah, but why?
I’ll have to defer to others on that since I haven’t really been following the financial news recently. However last I checked, the German govt was coming around to the idea that the ECB would have to take more of a leading role in monetizing the debt of the piigs, something they regarded as verboten since is smacks of Weimar Republic economics. Also I’m guessing there is more of a consensus for Eurozone govts turning over at least some fiscal planning authority to a central body so as to insure that the debt of each member country is of some minimum grade - IOW you don’t have anyone hitting 150%, 200% or more of a debt to GDP ratio. Finally I’m also guessing all of the austerity measures promised by the Greek govt are on track and therefore so are the bail out payments promised by the IMF et al. But I’m mostly guessing here.