Greece ‘Dress Rehearsal’ for U.S., Deutsche Bank Says

Bloomberg | February 6, 2010
By Paul Dobson

The cost of insuring against U.S. and U.K. debt defaults may rise in the same way as it has for so- called European peripheral nations including Greece and Portugal, Deutsche Bank AG said.

“The problems currently faced by peripheral Europe could be a dress rehearsal for what the U.S. and U.K. may face further down the road,” Jim Reid, a strategist at Deutsche Bank in London, wrote in a research note today.

Credit-default swaps on the debt of Greece, Spain and Portugal rose to record highs today amid concern that European governments will struggle to fund their deficits. Contracts on Greece climbed 19.5 basis points to 446.5 before dropping to 422.5, CMA DataVision prices show. Spain’s increased 13 basis points to 183 before falling to 168, and Portugal’s rose 9.5 basis points to 239 before slipping to 223.5.

The U.S. and U.K. “have similar issues to those facing peripheral Europe but have the luxury of a flexible currency up their sleeves as a first defense if the market wants to attack them,” Reid said. “Such a defense means that the market, for now, thinks there are easier targets.”

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