zerohedge.com / by Tyler Durden on 04/19/2015 17:15

With a “defiant” Syriza determined to hold onto any shred of dignity and legitimacy that may remain in the wake of months of painful negotiations with its creditors and with a €5 billion advance from Russia (a large chunk of which will promptly be paid to the IMF which use it to bailout Ukraine which will hand it right back to Russia) shaping up to be the last lifeline for Greece before Athens is reduced to issuing IOUs to pay pensions and salaries, the focus is beginning to shift away from Grexit and towards contagion risk.

The worry is that once Greece goes, both the credit market and periphery depositors will suddenly realize that the EMU is not “indissoluble,” but is in fact nothing more than a confederation of fixed exchange rates. This realization could (and to a certain extent already has) cause credit investors to begin pricing redenomination risk back into sovereign spreads and, far more importantly (because as UBS recently noted, bonds don’t cause breakups, bank runs do), may lead depositors to question the wisdom of holding their euros in bank accounts where they’re earning next to no interest and where, should some “accident” occur, they are subject to conversion into a national currency that would swiftly collapse against the euro once introduced.

And so, with every sell side European credit strategist trying to figure out what happens when €60 billion in monthly asset purchases by a central bank collide head on with an unprecedented sovereign default and with speculators’ net short position on the EUR now at levels last seen in 2012, it’s time to bring out the big guns with Mario Draghi staging a sequel to his now famous “whatever it takes” speech which came in the summer of 2012, when spreads were blowing out across the periphery and when euro net shorts looked a lot like they do today.

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