Monday’s market euphoria across the world at the terms of the European Union/International Monetary Fund rescue package for the European bond market faded Tuesday as investors sold stocks and took profits on the euro. The worry for investors is whether governments in Greece and Portugal can live up to their end of the bargain and manage to significantly cut government spending in the face of bitter opposition from voters.
Despite averting what could have very well turned into a fully-fledged liquidity crisis with Sunday’s news of a 750 billion euros ($951 billion) stabilization fund and European Central Bank assistance for the European bond market some investors remain sceptical that the worst is now behind us.
“The big question I am asking myself is whether Greece is Bear Stearns” Anthony Fry, senior managing director at Evercore Partners, said. “What I really fear is that if Greece is Bear Stearns then the UK is Lehman Brothers.” Fry worked for Lehman before its collapse.
Other analysts have told CNBC the UK is not in major trouble.
Michael Gallagher, director of research at IDEAglobal, said he believes the UK will be alright due to its ability to sell government bonds internally.
Steven Barrow, the head of G10 Research at Standard Bank agreed.
“I am confident about the prospects for the pound,” Barrow said. The difference between the UK and Greece, according to Barrow, is that Britain has more room for maneuver.
“The UK can devalue and print money, the UK will not default, the UK will not need the IMF,” he said.