Morgan Stanley emerging market strategist Rashique Rahman is out with a quick note examining the situation in Europe beyond today’s big party, which he rightly describes as predictable.
Rahman’s bottom line — which would seem pretty hard to dispute — is that the structural problems in Europe are not solved.
…liquidity provision or not, sovereign credit risk has not gone away. Our
work suggests ongoing deterioration of DM sovereign creditworthiness going
forward, manifested by further downward credit rating pressure. Additionally,
the transference of periphery Europe indebtedness to that of core Europe via
the stabilisation fund – and further, via ECB purchases – bears very close
monitoring. Contamination to the core (of DM) lies at the heart of contagion for
EM – which again is manifested through DM funding market stresses.
The story is not over.