I never thought I’d live to see the day, but here it is, from David “Spengler” Goldman:
“For the first time, the market has started to price in a bigger probability of default among industrialised countries than among investment grade companies.
More specifically, it now costs more to insure the combined risk of default of Europe’s developed nations, including Germany, France and the UK, than it does the combined risk of Europe’s top 125 investment grade companies, according to the Markit indices.”
Although Goldman draws some important conclusions from this, what strikes me is that large corporations and financial institutions are so supernational that they’re actually more likely to endure than “sovereign” nations, at least in the view of financial markets. Corporations are, legally speaking, creatures of the state, but in reality it looks as though some states at least are creatures of the corporations. Liberals especially gripe (justifiably) about the “corporatist” nature of our government, and this seems to be reflected in the way financial markets value sovereign states.
It will be interesting to see what would actually happen if a nation such as Greece or the UK actually defaults in a major way. But it won’t be fun.