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Sovereign debt risk has been the talk of the town so far in 2010. Downgrades to Greece's credit rating and its government bonds impact on the rest of Europe and its currency, the Euro, has sounded the alarm across the continent.

It seems apparent by viewing the CDS and European bond market, that the PIIGS are being forced to quickly tighten fiscal policies. The question is, is this belt tightening happening too fast. The IMF has cautioned about paring back their stimulus programs too quickly, risking a a dip back into recession (see IMF Chief Cautions Against Early Stimulus Exit WSJ).

It appears as if the European continent is moving in two different directions, with several countries, in particular Greece, exhibiting dangerous weakness. A German Economic Minister said, in a speech to parliament on Thursday, that weak Euro countries may have a "fatal" impact on the rest of the Eurozone. There are now rumors that France and Germany have already formulated a resuce plan for Greece. There is considerable worry in the market that Portugal and Spain will follow Greece as spreads on their government debt has spiked in recent days? For now it seems pressure will remain on the Euro. FXE looks like a good short and for those who want more to ratchet up the leverage, consider EUO ProShares UltraShort Euro.

Source: Bloomberg

Disclosure: No Positions

Source: Is Eurozone Dying?