Great Graphic: Is Contagion Returning?

Many European officials are trying to reassure investors and send a signal to Greek officials that it is not 2010-2012.  European countries are better positioned to deal with Greece.   The banks are stronger and there are backstops that weren't in place previously. 

Even Eurogroup head Dijsselbloem argued earlier today that as it is only 2% of the eurozone economy, Greece's problems are localized.  Indeed over the last few months, peripheral European bonds have become decoupled from Greek bonds. 

However, this Great Graphic, created on Bloomberg shows, since the start of the month peripheral bond yields have been rising.   The chart indexes the peripheral bond yields to the start of this month.  Relative to their yields at the end of March, the peripheral 10-year bond yields have risen more than Greece (white line).  The other bonds (Spain fuchsia, Portugal yellow, and Italy green) have around the same amount.   

Magnitudes of course are different.  The Greek bond yield is up 161 bp since the end of March.  Italian and Spanish bond yields are up 24-25 bp, while Portugal's 10-year yield is up 31 bp.  However, the important point here is the core bond yields are lower  so far here in April.  German, French and Dutch 10-year bond yields are off 10-12 bp over the same period. 

Contagion may be a more dynamic process that eurozone officials are claiming.   It may not be susceptible to permanent solution.  A Grexit, intentional or accidental (which has seen much ink spilled discussing), would mean that EMU is reversible and once one country leaves, the risk that another leaves would seem to increase not diminish.