Yesterday, while the Greek political elite struggled to find a functionary who was dull and compromised enough to suit all their interests, Italian bond yields poked their noses above 7.5%, perilously close to that all important 8%, goodbye Italy and goodbye Eurozone as we know it, cut-off point. The financial talking heads all say that what the markets want right now is certainty, but what yesterday's stampede for the exits demonstrates is that they don't really want to face up to the certainty that Europe is about to go down the plughole.
Anyway, things appear to have settled a bit today. Italy's 10-year bond yields dipped below 7% again and Spain's are not that far behind at 5.75%. As we can see from the chart below, it's difficult to see how a default in Spain would not be triggered by a worsening of the crisis in Greece and Italy. The latter nation owes €1.4 trillion, so the sucker is basically unbailoutable, however generous/stupid the Chinese happen to be feeling at the time.
For those who comfort themselves that the problem will go away once the northern members of the Eurozone have divested themselves of all those Club Med deadbeats, take a look at French 10-year bond yields today: 3.45% and rising. Merkozy may be joined at the hip, but the gap between the cost of state borrowing in France and Germany hasn't been this wide since '92 and it seems almost certain now that France will struggle to keep its own AAA rating, the loss of which will trigger another selling spree.