Credit Suisse: Bad & Good News for Peripheral Europe

Credit Suisse said on Tuesday that there are both good and bad news for the European periphery.
The bank noted that there will be more deflation. “On our calculations, Greece, Spain and Portugal need wages to fall 7%, 3% and 2%, respectively, to restore competitiveness versus core Europe”, according to a report.
It added that about a third of Greek and Irish government debt has to be written off (yet, this seems largely priced in).
Credit Suisse doesn’t think that peripheral Europe is a systemic crisis. Europe in aggregate looks stable, Spain survives just, while the cost to core Europe of not bailing out the periphery is estimated at $0.5trn–1.0trn.  Core Europe is expected to continue to support peripheral Europe.
Additionally, Credit upgrades Greece from underweight to benchmark, while the Greek market now looks attractively valued as “consensus nominal GDP growth expectations for 2011, at minus 1%, now look realistic”.
Credit Suisse added that an extension of maturity of the European Union/International Monetary Fund bailout loan for Greece (and Ireland) is likely to be extended from three to seven years.
“The IMF might be particularly willing to help Greece owing to the potential effects of not helping Greece on the Balkans”, it said.


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