Euro Default

There's a column in today's FT contemplating the default of a Euro-zone country, possibly Spain, Greece or Ireland. All of their bonds have been downgraded in the last few days, fueling speculation on their economic strength. Indeed the Euro is down almost 10% in the last few weeks because of this speculation and fell 1% just on the news of the Spanish downgrade.

A crisis over Greece might be the euro’s ultimate “stress test” (to borrow a phrase from Daniel Katzive of Credit Suisse). If the eurozone could find a way to deal with a default, that might confirm the euro’s status as the world’s next reserve currency.

But if the eurozone could not work out a solution, and a country exited, any such ambition would be over.

The dollar-euro exchange rate affects many other assets.

Now that fears are in the open that Greece (or another peripheral country) could be the Trojan horse that breaks up the euro, any news on this front could shake many other markets.