Euro Area

[Jolt]

Well, we'll pay, but with even harsher conditions, Spain and Portugal will cede their independence and become German states, then we can tax everybody in Germany with another solidarity tax to build up these two.We can deal with the speculators and bondholders once we have conquered the world, they will cause their own downfall...

Actually you're right to an extent, but the thing that makes Spain and Portugal most likely to default (whatever exactly that means in financial terms) is people talking about them defaulting soon, which scares all the bondfondlers and sharecrows.

Deutsch Portugal und unseren GroB Deutschland über alles!


Curiously, I'm still yet to figure out the primary reason for our State interest rate going through the roof. Our government was actually controlling and lowering the deficit, the first two austerity packages to lower the deficit after it shot up when the State served as social net for a bank bailout and the crisis impact on families and companies (Shot to almost 10% deficit then went down to 6-7% in only a few months), and only then putting up austerity packages after austerity package to cope with the increasing interest spread, yet it just still kept rising. It doesn't help that my university (Who is right-leaning to begin with) goes to explanations ranging from vague "We are not competitive enough" (Which is odd, because we were not competitive before and nothing even close to this happened.) to "It's the outside crisis" (Which would actually make sense except if we check the financial data before the interest rates went through the roof, we had several budget areas under much better control than other countries like France or the UK, even when we were uncompetitive and already in this crisis) to "It's just pure financial speculation without any real reason for the increase in interest spreads, beyond making money toppling Portugal and getting to Spain, which is the big prize" (And I was surprised to hear that from the mouth of a PSD-militant professor who is very clearly liberal leaning.)

There is still something unanswered. What is the fundamental endogenous cause which changed for Portugal so all of a sudden it couldn't pay it's 3-4% interest rate commitments like it had been doing since the 2000's?
Greece is understandable as the government concealed deficits and embarked on shady deals, which showed that Greece's finances were in fact extraordinarily much worse than it had shown to be.
Ireland happened because it had to prevent its financial infrastructure from evaporating, and blew its finances to prevent it.
Portugal...?

[gaelic cowboy]

The problem is an inability on the part of the commission to face the reality that most of the various problems are not budgetary. The various bailout/knockout packages are designed for budgetary problems purely because that is all the EU could stomach at the time of the Greek implosion. Ireland had no such problem til the banks blew up and instead of properly sorting the banks by forcing losses on creditors as should have happened they put money into them using a bailout, this made Ireland's problem a sovereign one, but it did not solve the underlying problem the banks inability to obtain market funding.

Now this fear/speculation basically meant that the market decided Ireland/Greece were rightly factored in as not being able to pay back the bailout terms. This meant that the threat of default rises so all weaker country bonds go UP in price and hurt the sovereign, Portugal of course does not have a major budgetary problem, it is a competitiveness problem the faster you run the more you will spend, hence these market types feel you wont actually earn enough to pay them back cos it will cost too much for Portugal to earn it.

Also Portugal is likely going to be badly effected by any problem in Spain even a sniff of a problem there sends Portugal's bonds UP due to the interconnected economies.

My bet is that the ECB has finally copped that the Irish banks need one of two things either creditors be forced to take losses or the short term liquidity mechanism will be magically transformed into a medium term liquidity mechanism. This last one is the more likely and gives the banks some breathing room to stop having to hoard capital because of all the withdrawn deposits since the bailout and before. The Irish banks are still weak but not bleeding and the government here can concentrate on fixing the economy.

Happily if that senario happens then Spain also might avail of it and ease the tension in there own banking system, the theory would be the spotlight would be off Portugal as a result. The only problem is if other larger countries set there face against it then Ireland will default and toxifiy there banking system and those market people know it, they have already factored in a creditor loss due to default so in a nice way extending our bank liquidity repayment timelimit to the ECB makes them lose money the bailout can be adhered too and everyone should get there money back bar Anglo Irish Bank who have/are been wound down.



Now it's time for bed but I post a bit more on this tomorrow

[Furunculus]

inteersting description of portugals problems:

http://ftalphaville.ft.com/blog/2011...ugals-bailout/

it was the EU wot dunnit:

http://blogs.telegraph.co.uk/finance...restructuring/

[Furunculus]

Louis will love this!

Der Speigel article discussing why the latest rescue plan won't work:
http://www.spiegel.de/international/...3509-2,00.html

Former European Commission Presidents Jacques Delors and Romano Prodi, as well as ex-Belgian Prime Minister Guy Verhofstadt, call the plans for a competition pact "ineffective" and say that they will "not produce any results. The European Commission needs to finally get "access to economic policy", the authors write, to enable it to force Europe onto "the path of convergence".

This sounds like a clear concept, but it is also reminiscent of Gosplan, the central state planning committee of the former Soviet Union. The European Commission has already introduced a strict regimen of quotas for products like light bulbs and biofuel, angering many consumers. Under the concepts devised by Delors, Prodi and Verhofstadt, the principle would be applied to virtually the entire economy.

and

It is an affliction of European policy that its protagonists in the national governments are generally split personalities. They call for a unified economic policy, and yet they refuse to cede any power to Brussels. They demand penalties for debt sinners, and yet they prevent sanctions from being imposed.

And they invoke the European spirit while stubbornly pursuing national interests. Udo Di Fabio, a judge on Germany's Constitutional Court in Karlsruhe, speaks of "conceptual limits that can in fact only be exceeded by taking a spirited step in the direction of the federal state."

rock on.

[gaelic cowboy]

inteersting description of portugals problems:

http://ftalphaville.ft.com/blog/2011...ugals-bailout/

it was the EU wot dunnit:

http://blogs.telegraph.co.uk/finance...restructuring/

The debt restructuring article there has been what I have been calling for since I dunno prob 2008 or summit, the reality is that unless the debt burden is either cancelled or reduced merely shoveling bailout money to any sovereign no matter who they are will end in restructuring.

The stress tests are out today for the Irish banks, if they show anything less than 40-50bn capital requirement for the banks then you can mark it down that there is a stitch up in the off, my feeling is that they will come in under 35bn purely because thats what was provided for in the bailout agreed.

[Ronin]

....and the Portuguese government throws in the towel.

[Louis VI the Fat]

....and the Portuguese government throws in the towel.

You people still have got towels left?


That's not right. I thought the subjugation of Portugal was at least as far advanced as that of Ireland.

The periphery is proving more sturdy than we thought...

[gaelic cowboy]

Well the stress tests for Ireland's banks came back at under 35bn so that's basically a lie again and the medium term liquidity facility was not agreed so in the end prob sometime around 2012-2013 we will have some sort of default oh sorry I meant "Burden Sharing".

On Portugal it looks like various large banks pretty much told the Portugese caretaker government to bailin 1-0 to the Banksters