However, says Colesmith, there is some good news. “As a strong, centralised state, France will be able to act quickly and can count on support from Germany and the ECB.”
It should also be remembered the other periphery nations are not out of the woods, yet. “We need to be taking a careful look at our portfolios and look at the risks to be sure there is not too much concentration,” he adds.
Too little, too late
Under these circumstances, Ireland looks better placed than most. It cut the deepest when initiating reforming, asking how high when asked to jump, rather than resisting. Governance is on a far stronger footing than previously and the Irish economy seems to be responding positively.
Portugal also cut deep, but a lot of fettling is required in terms of efficiency. It is being frustrated by its political system where the constitutional courts have vetoed a number of reforms passed during the reform programme.
There are also other economies being closely watched by fund managers and analysts. Though peripheral even to the periphery, some might even consider them ‘noise’, but they can prove to be a bellwether for others in the region
Cyprus is one. Once a high single-A credit, its close allegiances with Greece and an over-reliance on foreign investment from Russian émigrés sent it into a tailspin.
Another is Slovenia, which just about managed to avoid a bailout. Its economics look better than some, but its GDP is lower. However, its banking system is in a mess and the country cannot agree upon sensible or stable governments. One fund manager described Slovenia as “like Belgium in terms of politics, but without the diversified strong economy”.
Confidence is increasing, but for how long?
Despite the potential for upsets if things do not go as planned, there has been considerable inflows into European governments including periphery.
Investors are also moving away from triple- A benchmarks to full investment grade for Italy and Spain, if not Greece and Portugal. This confidence is set to continue rising while there is economic expansion and the ECB remains in the background. But if there is no growth, all bets are off.
Political risk remains a key determinant for investors, across all periphery states, not to mention a few core economies, too.
Spain is crippled with unemployment. If that fails to improve, the issues many nations witnessed in the recent European elections may trickle down to the general elections.
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