cryptogon.com

The many potential triggers for an expanded crisis include a failed bond auction, any signs that Athens or donor nations were backing away from a 110 billion euro ($141 billion) bailout of Greece, and a freezing up of Europe’s interbank money market.

…

Greece became unable to finance its debt at affordable rates when its 10-year government bond yield soared near 10 percent in April. The euro zone’s other weak countries have not reached that stage; Portugal’s yield was below 6 percent on Wednesday.

Portugal sold 500 million euros in six-month Treasury bills on Wednesday at a yield of 2.955 percent, which was about four times the rate at the last such sale on March 3 but was well below maximum levels in the secondary market. This was seen as a moderately positive sign by analysts.

Spain is expected to succeed in selling 2-3 billion euros of government bonds on Thursday, although at a much higher yield than in its last auction, analysts said.

Nevertheless, every debt sale by weak euro zone states in coming months is likely to be viewed as a potential flashpoint for an expanded crisis. Portugal plans to offer more T-bills on May 19 and Spain plans another bond sale on May 20.

Annunziata estimated Spain’s bond spreads were still low enough for it to borrow at current rates for at least a year or more without doing serious damage to its finances. Portugal can keep borrowing at current rates for at least a year, he said.

But he added, “The problem, as for exchange rates, is also the speed of the movement. If spreads keep widening then markets could more quickly lose confidence and the problem would be the quantity of available financing, not the cost.”

Meanwhile, the Greek bailout package announced this week imposes such harsh austerity measures on Greece that the markets will continue doubting the country’s political will and economic ability to stick to the package.

Any sign that the government of Prime Minister George Papandreou was backing off from key fiscal reforms in the face of public opposition could raise the prospect of a Greek debt restructuring or default, triggering an expanded crisis.

The European Commission and the International Monetary Fund will monitor Greece’s progress every quarter and link aid disbursements to those reviews. The reviews could become triggers for an expanded crisis if Germany, where public opinion strongly opposes helping Greece, decides Athens is not meeting aid conditions and balks at a disbursement.

The markets could also panic if commercial banks around Europe, which have cut off funding lines to Greek banks, decide to do the same to banks in Portugal, Ireland and Spain.

So far the stresses in the money markets do not approach those seen at the peak of the global crisis. The two-year euro zone swap spread, which measures the aversion of lenders to deal with any but the most creditworthy borrowers, has widened to 65 basis points, its widest since mid-March 2009, but is far below the record 130 bps hit in October 2008.