Investors fear European defaulting
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Steve Chiotakis: We’ve talked a lot about the bailout of the global banking system. Governments around the world have been propping up their banks with cash. That money is coming from the sale of government bonds. As Megan Williams reports, investors are increasingly betting that some European governments will have a tough time paying the money back.
Megan Williams: When investors buy debt, they often buy insurance. It offers protection if the debt can’t be repaid. The insurance is called a credit default swap, and we’ve seen it used on debt issued by banks.
But now with all the billions European governments are shelling out to bail out banks, investors are buying insurance against countries defaulting. We’re not just talking emerging markets in Eastern Europe, but G7 members. The price for credit default swaps on European government debt has doubled this month alone.
Europe’s heading into a recession, with consumer spending way down. A country like Italy already has a debt bigger than its GDP, and it hasn’t even begun to bailout banks.
I’m Megan Williams for Marketplace.
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