EU contagion - This is real

“The euro was initially buoyed yesterday [Wednesday] by the European Commission’s endorsement of the Greek debt plan. However, it slipped back after Portugal cut a planned treasury bill issue and Spain disclosed that its budget deficits for the next three years will be higher than forecast. It would appear the sovereign debt problem is turning into a contagion in the eurozone,“ said Michael Hewson of CMC Markets. --from FT

The EU PIGS are all in the same pen. Why would you hold the debt of these other countries when they may be in a similar situation. Yes, there is a new Greek debt plan, but the terms place significant restrictions on domestic programs. The Greeks are not happy which means there is more political fall-out.

You can talk about moral hazard issues, but the costs on the countries is real and the cost of any bail-out will be felt by the entire region.

Jean-Claude Trichet, European Central Bank, sought to play down concerns over Greece, saying he was “confident that the Greek government will take all the decisions that will permit to reach” the medium term goal of cutting its budget deficit. The ECB left its main interest rate unchanged
at 1 per cent. --from FT

The ECB cannot do much except leave rates alone which means that the exit strategy will be delayed. Clear sign to sell EUR.