We assess sovereign solvency in Greece, Portugal, Spain, Ireland and Italy. In addition to government debt dynamics, we account for financing needs, banking sector risks and reliance on foreign capital. Our results suggest: 1) while Greece has the worst debt dynamics, the five countries' overall vulnerability scores move closer together when liquidity needs, banking sector risks and exposure to 'sudden stops' in foreign capital flows are included; 2) Italy appears much more robust than the rest of the group; 3) the EU-ECB actions last weekend can go a long way in addressing financing and liquidity-related issues, thereby lowering the risk of self-fulfilling dynamics; and 4) however, the massive adjustment challenge of turning around these countries' debt dynamics remains. This is likely to shift markets' attention to the actual implementation of the promised fiscal reforms and economic performance in response to them. If these disappoint, the very positive market reaction of recent days may not last.
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