You are here: Economy » Sean Egan says Spain could be the next domino in the euro zone crisis
Niels just told you to ignore Egan-Jones at your peril earlier today. As luck would have it, just as that post went out Sean Egan, co-head of Egan Jones, was on CNBC as a guest host for an hour. Egan-Jones is a credit ratings agency that does not a huge conflict of interest because it is not paid by the companies it rates. And, as Niels points out, unlike its competitors, Egan-Jones actually has a good track record.
What’s he saying? He’s saying what I’m saying:
Forget about Berlusconi and austerity in Italy. That’s a sideshow too. Austerity is not going to bring Italian yields back down. These days are over, folks.
This is a rolling debt crisis brought about because of debt and deficit concerns for debtors who lack a lender of last resort. Think about it; in the euro area, banks have been getting more support from the ECB than the sovereign governments. So, one by one, all the sovereign debtors are going to get picked off. Now it’s Italy’s turn in the penalty box. And the euro zone crisis with Italy is now existential. Here’s what Egan says:
“If a country isn’t growing, it’s debt is growing as a result. So, any interest beyond, let’s say 2.5%, is a problem. And with Italy’s growth shrinking, as a result of the austerity measures they’re putting in place, we’re beyond it. Basically if it doesn’t come down in the very near future, we’ve gone from the Greece problem to the Italy and possibly Spain problem.”
For the record, Egan sees 90% haircuts in Greece, eventually. And he says that 6% is the point of no return. If you look at the debt crises in Greece, Ireland, and Portugal, once you hit 6%, the interest rate death spiral kicked in as insolvency was self-fulfilling. That’s how it works when no lender of last resort steps in. It works the same way for financial institutions too. You wanna know why MF Global went under? There it is.
Listen to what Egan has to say in the video clips below. Sobering stuff
About Edward Harrison
Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.
Like us on Facebook
Follow Edward on Twitter
- How do you say “dead cat” in Latvian?
- Property, inequality and financial crises
- A parallel currency for Greece: Part II
- A parallel currency for Greece: Part I
- The Latvian financial crisis
- Are The IMF and the EU at Loggerheads Over Greece?
- What multiple should we give China’s GDP growth?
- How to dress for a rainy day (of low nominal investing returns)
- The coming defaults of Greece
- Moral Hazard Taken Too Far
- Rediscovering old economic models
- Greece: Irresistible Force Meets Immovable Object
- Will the AIIB ever matter?
- The ‘Perfect Storm’
- Spain may not be Greece, but it is Not the Opposite Either
- Is Greece’s Debt Odious?
- Is Finland’s Economy Suffering From Secular Stagnation?
- AIIB Prelude to SDR Decision
- Repeat after me: sectoral balances must sum to zero
- Greek default
-  Bonner on weak US data, the Chinese economy and summer travel
-  Hawkins on the Fed’s hike delay and Europe, corruption at FIFA
-  Brazil’s setbacks and Pettifor on Europe’s unraveling
-  Cybersecurity, the surveillance state and Rand Paul's filibuster
-  Roberts and Katusa on North American oil vulnerabilities
-  Municipal follies and the McDonaldization of America
-  China’s malinvestments and the forex rigging settlement
-  Wearables are hot, but is this a durable market?
-  Keen on private debt growth limit, Schiff on Greece and China
-  Rickards: The Fed has been tightening into weakness