Are European Banks Now Riding On A Massive Wave Of Moral Hazard?

The yields and spreads on PIIG debt are blowing out to levels not seen since the peak of the euro crisis.

Here’s the latest look at Greek debt via PragCap.


And yet, European bourses (and the euro) haven’t been all that volatile — certainly nothing like how they were earlier this summer.

Here’s a look at French bank BNP Paribas, which remains nicely off its lows.


It’s come off a bit, but again, it’s well off its lows.

Eurobulls would say it that the stress tests gave the banking system a clean bill of health. Perhaps. It also seems likely that having once once stood at the edge of the abyss, we now now what Euro leaders/ECB will do (perform a bailout). That theory is not airtight, since it would seem reasonable to counter-argue that if the market were totally under the spell of moral hazard, then the PIIG bond yields wouldn’t be blowing out.

Maybe. But it’s clear that while the freakout is coming back to Greek and Irish debt, the contagion fears appear minimal.

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