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FT: 'Peripheral Bond Rally Reaching Bubble Proportions'

Greece_EUA recent article in London’s Financial Times refers to the recent Greek bond auction, cautioning that investors have not learned the lessons of the financial crisis but instead “swung from blind panic to short-sighted complacency within less than two years”.
Philippe Legrain’s article ‘Investors are ignoring eurozone risks’ mentions that although the financial crisis within the eurozone is not over, markets seem to be pinning their faith too much on quantitative easing by the European Central Bank, while investors are defying the dangers that are still around. “The banking crisis is unresolved. Public debt is still rising. And the recovery remains feeble,” writes Legrain.
“Yes, prospects have improved since a year ago,” Legrain notes, acknowledging that the economies of southern Europe are no longer solely relying on foreign loans and are finally showing some signs of growth, but “in their hunt for yield, investors are ignoring the risks that remain”.
The “debt dynamic in the ‘periphery’ is precarious”, says Legrain, “and because the fear of imminent doom has abated, politics in countries with scarily high unemployment and crushing debts could easily become more turbulent”.
“Even an insolvent Greece,” says Legrain, “which restructured its privately held debt only two years ago, owes a mountain more to the EU and the IMF and is still reliant on their funding, recently tapped markets for five years at a mere 4.95 per cent. Since Greece’s public debt – 172 per cent of GDP and rising – remains unsustainably large, investors are in effect gambling that the government will prioritise repaying them and eurozone authorities will be willing to grant Greece some form of debt relief.”

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