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The only trouble is that Spain, Portugal, and Greece are currently governed by left-wing socialist governments, not "right-wing" dictators or military regimes. What's more, the Socialists trounced the center-right in the most recent Greek elections in October 2009 in part because the conservatives were politically unpopular for pushing for an austerity package aimed at getting the country's fiscal house in order. From a New York Times article at the time:

In conceding defeat, Prime Minister Kostas Karamanlis said he had failed to persuade Greeks to accept the two years of austerity measures he had called for to steer the country out of its economic crisis. “The voters did not approve of this policy. It was their choice, and I respect it,” he said.

Mr. Karamanlis also stepped down as leader of the New Democracy Party, which suffered its worst performance since the restoration of Greek democracy in 1974 after years of military dictatorship. He said he would call a party congress to elect a new leader within a month.

Mr. Karamanlis, 53, called early elections last month, two years into a mandate dogged by corruption scandals and economic crisis, aiming to win a fresh mandate and stave off labor unrest. He had called for a freeze in public-sector wages to fight rising debt and unemployment, but he had difficulty pushing through important economic and structural reforms because he governed with a one-vote margin in Parliament.

Mr. Papandreou, 57, instead favored increased spending, including a $4.5 billion stimulus package to revive the Greek economy though infrastructure projects and environmentally sustainable development, while cracking down on tax evasion. Experts estimate that Greece loses $17.5 billion annually in unpaid income taxes and $13 billion in unpaid payroll taxes.

The victory by the Socialists here was a rare event for Europe, where the left has been losing ground and has often been unable to capitalize on the financial crisis for its own political gain.

But many Greek voters appeared to be voting against Mr. Karamanlis as much as for the Socialists. After two decades of Socialist rule, Mr. Karamanlis was elected in 2004 promising to restore faith in government.

For his part, Cramer failed to correct Matthews, agreeing with Matthews that:

You have a currency [the euro] that's made up of [countries run by] profligate right-wingers non-profligate, actually prudent somewhat left-wingers. I'm talking about Germany. Germany is the rock bed here.

Germany is governed by a center-right coalition led by conservative Chancellor Angela Merkel.

—Ken Shepherd is Managing Editor of NewsBusters. You can follow him on Twitter here

It did not take too long for contagion to spread (one day), smack in the face of EU statements that contagion was no risk. Why the EU would put themselves in a position to look so foolish is beyond me. Here is a series of articles to consider.

S&P Cuts Greek Debt Rating to Junk

Greek Two-Year Note Yield Climbs to More Than 17% on S&P Cut

Greek two-year government note yields surged to more than 17 percent after Standard & Poor’s cut the nation’s credit rating three levels to BB+, or junk.

The two-year yield has since hit 18 percent.

Restructuring Would Cause 50-70 Percent Losses

Greek Debt Cut to Junk at S&P, Further Downgrades Possible

Greece had its credit rating cut to junk by Standard and Poor’s and forecast investors would be paid no more than half their initial outlay in the event of any restructuring of debt.

S&P lowered its long- and short-term sovereign credit ratings on Greece to BB+ and B, respectively, from BBB+ and A-2. The outlook is negative.

“We assigned a recovery rating of ‘4’ to Greece’s debt issues, indicating our expectation of ‘‘average’’ (30%-50%) recovery for debtholders in the event of a debt restructuring or payment default,” S&P said in the statement.

Dollar, Treasuries Soar in Flight to Safety. EU Handling "Inept"

Treasuries Extend Gains After S&P Cuts Greece to Junk Rating

Yields on two-year notes fell the most since March 2009 before the Treasury sells a record-tying $44 billion of the securities.

“People are flocking to security,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York. “They’re seeing how inept the EU is in handling this Greek thing. If Italy, Portugal or Spain has the same problems this could be a real bad situation.”

Credit Default Swaps Hit Record High Portugal Downgraded

Credit Swaps at Record High as S&P Downgrades Greece, Portugal

Credit-default swaps on European sovereign debt surged to records after Standard & Poor’s cut its ratings on Greece to junk and downgraded Portugal.

Contracts tied to Greek government bonds climbed 111 basis points to 821, according to CMA DataVision. Portugal rose 54 basis points to 365. Yields on Greek two-year notes surged above 18 percent, the highest since at least 1998, on concern bondholders will be forced to take losses as the country grapples with the highest debt ratios in the European Union.

German Chancellor Angela Merkel said yesterday she won’t release funds for Greece until the nation has a “sustainable” plan to reduce its budget shortfall. That’s after Greek Prime Minister George Papandreou asked the EU and the International Monetary Fund last week to activate a 45 billion-euro ($60 billion) emergency support package.

Swaps on Greece are up more than eight fold since August and contracts on Portugal are about seven times higher.

“As long as there is no concrete solution, the market will keep pricing in the worst-case scenario,” said Mehernosh Engineer, a credit strategist at BNP Paribas SA in London.

Contagion Hits Portgual

Portugal Suffering Greek Contagion Pressures EU Bonds

Portugal risks becoming the new Greece.

With a higher debt burden and a slower 10-year growth rate than Greece, Western Europe’s poorest country is being punished by investors as the sovereign debt crisis spreads. The risk premium on Portuguese bonds rose to more than double the past year’s average this month. Portugal’s credit default swaps show investors rank its debt as the world’s eighth-riskiest, worse than for Lebanon and Guatemala.

“We do not ignore that Greece’s particular situation has contagion risks, and we are feeling it,” Finance Minister Fernando Teixeira dos Santos told reporters in Lisbon on April 22. “The performance of spreads in the market reveals that contagion risk.”

While Portugal’s public debt of 77 percent of gross domestic product is on a par with that of France, the burden including corporate and household debt exceeds that of Greece and Italy, at 236 percent of GDP. The savings rate is the fourth-lowest among 27 members of the Organization of Economic Cooperation and Development, according to the Paris-based group’s data.

“The reason we’re concerned about Portugal is not because its public sector debt ratios are excessively high, it’s more that the Portuguese economy doesn’t really grow,” said Kenneth Wattret, chief euro region economist at BNP Paribas SA in London.

Entering State of Blind Panic

Greek, Portuguese Bonds Drop as Downgrades Escalate Debt Crisis

Portuguese, Spanish, Irish and Italian securities plunged and German debt rallied as investors sought safer assets after Standard & Poor’s Ratings Services cut Greece three levels to BB+, or junk, and lowered Portugal two steps to A-. Greek notes slid earlier as concern deepened that the nation will ask investors to accept delayed or reduced debt payments.

“We’re entering into a phase of blind panic,” said Orlando Green, an interest-rate strategist at Credit Agricole CIB in London. “Given the inaction of the euro nations to back Greece and to get things done quickly, we’ve found now this inaction has been a big obstacle. That’s not satisfying for the markets, and not for S&P either; hence, the downgrade.”

No Panic ... Yet

On Sunday I wrote Expect Contagion in Europe, Greek Debt Crisis Will Spread; New Wave of Riots in Greece

Given that the European Commission has been 100% wrong 100% of the time in its ability to yap away the problems in Greece, I take the opposite side of Greek Debt Crisis Won’t Spread Through Europe, Officials Say

That was an easy call.

I do not think we have seen panic yet. However, we will see panic if contagion spreads to Spain or traders start questioning UK debt, or interest rates in Japan. All of those are possible and Spain is likely up next.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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