Dexia takeover weighing on France and Belgium

The upper chart is showing the spead between the 10 year Government bond in Germany and in France. As can be seen, it made new highs last week and are headed for first resistance at 1.02, but I will expect this resistance to be broken soon and next target will be 1.25.

The main reason for the widening of the spread is the very weak banking sector in France. The French Government has just taken over the French part of Dexia, but BNP Paribas, Credit Agricole and Societe General all is looking bad at this point.

One should expect a downgrade of France soon, which will weaken the Euro-zonens ability to deal with the debt troubles in South European countries.

The French Stock index CAC 40 is facing resistance at 3,258 just ahead, but the rising risk of a downgrade of the France debt should weigh on the French storcks too. Short term a break below 3,160 will turn the CAC 40 for a test of important support at 3,060.

The chart above is a chart of the spread between the 10 year German Government bond and the 10 year Belgium Government bond. As can be seen it has broken above the 1999 high at 2.15. We can see a big invers Shoulder/Head/Shoulder bottom calling for a rally higher towards at least 2.80.

If France is in trouble, then Belgium is in major trouble. The Belgium took over the Belgium part of Drexia for EUR 4.0 billion and the guarantees over the next decade extend EUR 90.0 billions.

That will be a major drag on the Belgium economy.

Belgium could be some kind of "Black swan" in the Euro-debt crisis, as focus is primarily on Greece, Italy and Spain, but a sudden collaps in Belgium could a wake-up call, that the debt problem is much bigger, than most expects.