M&G: PIGS vulnerable as Greek crisis spreads

Exactly one year ago, an outbreak of flu in Mexico led to fears of a global pandemic. 'Swine Flu' did indeed spread around the world, however for most countries it had only a limited effect on economic output. We are now facing something that is likely to prove much more serious.

This time the epidemic can be traced to Greece, and contagion is rapidly spreading among the PIGS. At the beginning of April, Portuguese 10 year sovereign debt had an excess yield over German 10 year bunds of about 100 bps. Portugal began showing some worrying symptoms last week, but today things have got a whole lot worse. The Portuguese bond was issued yielding 40 bps over the benchmark German bund, and today spreads over Germany have lurched to a sickening 260 basis points. Who's likely to get infected next? The other PIGS look particularly vulnerable, and Ireland, Italy and Spain are...