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Steven Syre | Boston Capital

Few fears about Greek crisis spreading

A global economic update: There was no dramatic news in Spain on Monday. Or in Portugal, Italy, or Ireland.

The relative economic and market stability of those countries as the Greek crisis has played out over the past few weeks tells you a lot about how the world has changed for the better over the past several years.

Once, they were seen as weak economic dominos, liable to tumble if Greece couldn’t pay its debts and wouldn’t go along with tough austerity plans. People worried about a snowballing crisis rolling downhill to threaten the global economy. That’s not the case today.

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Sure, Portugal still struggles with huge unemployment rates. Spain is dealing with the collapse of its housing market. Italy still juggles sky-high levels of public debt. Ireland still feels the effects of its bank-lending fiasco. But the economies in all those countries are slowly improving and have much firmer support from European central bankers today.

One crude way to measure how the world has changed: the current interest rate yields on bonds issued by those countries. The riskier the investment, the higher the yield demanded by the market.

Portugal's 10-year bond yield has increased from 2 percent earlier this year to about 3.2 percent. The yields for similar Spanish and Italian bonds have climbed to about 2.4 percent. Comparable Irish bonds yield 1.6 percent.

For a point of comparison, the yield on the 10-year US Treasury — considered a virtually risk-free investment — was 2.3 percent on Monday.

This wasn’t the way events played out in 2011, the last time Greece appeared dangerously close to the economic breaking point. Bond rates in those countries considered most susceptible to economic contagion had spiked as high as 7 percent in many places and to 13 percent in Portugal. The world was so concerned the Standard & Poor’s 500 stock index sank about 16 percent in a month.

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So what happened?

“Of course you still have a little bit of fear, but basically the institutional framework has completely changed in five years,” said Evariste Lefeuvre, chief economist at Natixis North America in New York.

Earlier this year, the European Central Bank embraced the strategy of buying debt on public markets — much the way the US Federal Reserve did earlier — with a commitment to pump hundreds of billions of euros of new money into the economies of its member countries. It became an important economic backstop for weaker countries and their bonds.

Meanwhile, all the countries once considered at risk enacted reforms or took other action to deal with their problems. No troubled country solved its problems, but each moved in the right direction.

Another plus: the shrinking value of the euro itself. The currency has fallen nearly 20 percent over the past year, which makes exports from Italy, Spain, Portugal, and Ireland much more competitive around the world.

The euro wasn’t the only thing getting cheaper. Sinking oil prices also helped weaker economies, especially in Spain and Italy, produce products less expensively. Those goods became more affordable for both foreign and domestic buyers.

“The euro was a pivotal factor,” said Sara Johnson, a senior research director at IHS Economics in Lexington. “The drop in oil prices may be more luck than policy, but they’ll take it.”

Spain, Portugal, Italy, and Ireland are all expected to post positive current account surpluses of varying sizes this year — a general indication that economies are competitive and exports are strong. All four are also expected to expand their economies this year, from the vibrant expansion forecast in Ireland to the much slower improvement projected in Italy.

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None of that means Europe’s more vulnerable countries are entirely out of the woods — or that they will recover at a similar pace. But the once-common fear that events in Greece would tip them into crisis doesn’t rattle markets much any longer.


Steven Syre is a Globe columnist. He can be reached at syre@globe.com. Follow him on Twitter @GlobeSteveSyre.