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Greek 2 Year Yields 20 Percent, Italy Up 6 Basis Points, Portugal Up 7 Basis Points, Spain Up 27 Basis Points
It's not just Greece and Portugal.
As Simon Johnson reports:
This
is not now about Greece (with 2 year yields reported around 20 percent
today) or Portugal (up 7 basis points) or even Spain (2 year yields up
27 basis points; wake up please) or even Italy (up 6 basis points).
This is no longer about an IMF package for Greece or even ring fencing
other weaker eurozone economies.
This is about the fundamental
structure of the eurozone, about the ability and willingness of the
international community to restructure government debt in an orderly
manner, about the need for currency depreciation within (or across) the
eurozone. It is presumably also about shared fiscal authority within
the eurozone – i.e., who will support whom and on what basis?
(In related news, Eurozone sovereign credit default
swaps widened somewhat Tuesday, but tightened again after the German
finance minister said that Germany will rush through a disbursement of funds to Greece.)
Standard & Poor's downgraded Spain's sovereign credit rating today from AA+ to AA, after recently slashing Greece's rating to junk and lowering Portugal's rating two notches from A+ to A-.
Ambrose Evans-Pritchard writes that there are "ominous signs of investor flight from Spain and Italy."
As this Reuters chart shows - based on information from BIS - France, Switzerland and Germany are the largest holders of Greek debt:
David Rosenberg notes:
Portugal’s
stock market has traded down to a 12-month low and it’s so bad in
Greece that the government has banned short selling for two months.
(Hey, it worked in the once-capitalistic U.S.A. didn’t it?) We see in
the NYT that Barclay’s analysts believe that Greece needs €90 billion
to see them through, €40 billion for Portugal and €350 billion for
Spain!That is €480 billion of refinancing help, which dwarfs the latest
€45 billion EU-IMF joint aid announcement by a factor of TEN (according
to Ken Rogoff, the IMF is maxed out after €200 billion)! Do euros grow
on trees as fast as Bernanke-bucks? Would the ECB, modeled after the
Bundesbank, ever resort to the printing press for a fiscal bailout?
Where exactly is this money going to come from?***
Yesterday
was really as much, if not more, about Portugal than it was about
Greece. Contagion risks are spreading as they were amidst the turmoil
around Bear Stearns in early 2008 ...[Spain's] combined fiscal
and current deficits are the highest in the industrialized world, save
for Iceland (and we know what shape it is in). The amount of debt it
has to refinance in the coming year is as large as the entire Greek
economy ...***
If the other two major rating agencies
follow S&P’s lead and cuts Greece to “junk”, then the ECB would be
in a real bind for it cannot hold below-investment-grade bonds on its
balance sheet. If the ECB does accept junk-rated Greek debt as
collateral, then the sanctity of its balance sheet will be seriously
undermined; though this ostensibly didn’t matter too much to the Fed in
the name of saving the system.
It is tempting to assume that this is just a Eurozone problem. But that might be a very erroneous assumption. See this, this and this.
And as Megan McCardle writes:
The most terrifying words I've seen written so far about the growing crisis in Greece were penned
by Yves Smith yesterday: "So the whole idea that the financial crisis
was over is being called into doubt. Recall that the Great Depression
nadir was the sovereign debt default phase. And the EU's erratic
responses (obvious hesitancy followed by finesses rather than decisive
responses) is going to prove even more detrimental as the Club Med
crisis grinds on."The Great Depression was composed of two separate panics. As you can see from contemporary accounts--and
I highly recommend that anyone who is interested in the Great
Depression read the archives of that blog along with Benjamin Roth's diary of the Great Depression--in 1930 people thought they'd seen the worst of things.Unfortunately,
the economic conditions created by the first panic were now eating away
at the foundations of financial institutions and governments, notably
the failure of Creditanstalt in Austria. The Austrian government, mired
in its own problems, couldn't forestall bankruptcy; though the bank was
ultimately bought by a Norwegian bank, the contagion had already
spread. To Germany.... It's also, ultimately, one of the reasons that
we had our second banking crisis, which pushed America to the bottom of
the Great Depression, and brought FDR to power here.
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Who is on the hook for all of this? is there a euro AIG out there that has been insuring these bonds??
Before responding to poster "Harry Wanger", please be aware of just whom and what you are dealing with in this person:
http://www.minyanville.com/businessmarkets/articles/AAPL-apple-gm-psycho...
His real name is James Kostorhyz, and he is here posing as a troll in dishonesty and in disregard for the fundamental purposes of this forum. He is NOT posting here in good faith, but is purposely antagonizing those with independent, anti-establishment views and opinions for his own selfish and cynical purposes, as part of a study on "the psychology of permabears".
Please do NOT respond to this reprehensible troll, here or anywhere else on ZeroHedge. He is NOT here in good faith, and should be shunned!
Nice pick up. I'm familiar Kostorhyz and your theory makes sense. "looking from both sides" if you know what I mean. I just wish I had had been more concerned with making money than being right since November 2008. Oh well I still have my day job.
It'd be good to get a brekdown of "Other" and work through these exposures as a % of GDP. Switzerland: 74b, sounds like it could hurt.
As I have said many of times on this website, the other PIIGS where going to have their day also as soon as stuff started to really go south for Greece. They where just waiting for the damn to burst and it did. For Greece with the 302.8 Billion (not to mention what else is lying back in shadows that hasn't been reported, (internal debt and liabilities)), there is no way that they are going to be able to make good on that amount of debt without going into some form of default and renegotiating with all bond holders. The bailout is only those countries throwing more good money after bad at a very very bad situation. If the country doesn't have the money to take care of the 19 billion in bonds coming up on May 15 I believe, who says that they will be able to make good on the other debt and also the bailout loans. Greece has a population of 11 million and change, and a GDP of 333.533 billion, which if you break it down to each person is about 29,881 dollars a person. Now how much of the GDP can be used to service their debt (even if they go into default). Lets say 1/3, that would leave 222 billion and change for the govt., but they would still need to pay the bills and liabilities with that 2/3 that is left. Which won't be enough so they would have to cut services and put into effect severe austerity programs. If it was a bigger population country with alot younger in demographics, then they could handle it a little bit more when there young go out from Greece to work in other countries and then send back remittances which can be taxed. But with many in the population on the public dole, they can't see taking at least a hit of a third (which will be more believe me, it's only a third to the govt. not to the ones further down the chain) on their pensions or salaries or whatever.
I've made mention of this before about what Greece has that could help breath more life back into their economy, it's their excess islands. Greece has 1,400 islands and only 227 of them are inhabited, which leaves 1,173 that are ripe for the pickings. They could sell some territory for forgiveness on loan debt, but they may not because of nationalism. It's just a thought, but I'm willing to bet that more than one country is thinking about all that territory in the Med.
A Greek island or two would make a nice base for a carrier group. We ought to get something for our donations. Might makes right as usual. As long as our military/technological/industrial complex is without equal, our reserve currency status is secure and the US calls the shots. For now at least. Until gold ( or the yuan) asserts itself.
Everything is fine LALALALALALALALA...
People want to talk all this smack about the dollar when I've been saying for a year, what other currency would you want in the coming world crisis?
What is also interesting about this post is that it misses what has been happening with the British pound which has been stealthily depreciating both against the euro and against the dollar (and therefore also the Chinese currency). Thus, while everyone's attention has been fixed on the PIIGS and on the latest China/US skirmish, we can expect improvement in the UK balance of trade numbers. Might make for an interesting currency play.
Sorry, don't know how that duped...
The non-news story pairs are where the action should reside. Brazil-UK, Canada-UK, AU-UK, etc. The commodity currencies should continue to rapidly appreciate and if they dip against the USD a sure fire buy, but hey, I'm just an internet schmuck....
Germany if it joins the dots should simply 'cut to the chase' and save throwing its money away.
While the Greece Fire Spreads, a Trade War Begins
by John Galt
April 28, 2010
While the world is focused on the PIIGS roast in Europe, a trade war has begun between two of the world’s largest economies and unless brought to a screeching halt, it endangers the United States economic “recovery” before it really begins to make any realistic strides towards long term stability. For starters, this story from the Financial Times of London this morning seems innocent enough by itself:
China hits US chicken with new tariffs
But when taken in context with other headlines ignored by the U.S. Bubblemedia and mainstream media, you have to take notice and plan for the worst:
China angered by US tariffs on tires
Sino-US trade rows escalate
China v world as a trade war comes closer
China risks trade suicide
Pipe duties may worsen row between the U.S. and China
The disputes between China and the United States are being glossed over because we are such good buddies heck, we don’t need poor old Obama having to deal with that also now do we? In reality, his administration has quietly initiated a series of protectionist maneuvers without Congressional approval to protect weakened union based industries essential for his power base to remain in place and viable financially. These moves have angered the Chinese Communist government greatly and there are some who wonder if their phasing back from participation in Treasury auctions is partially related to the actions of the administration.
If this Trade War escalates, which it appears that it has this morning with China going after a necessity for their nation foodstuffs this time in the form of chicken, the United States is in no position to win as you never poke your central banker in the eye and in this case the Chinese government is wearing safety glasses to stop us from doing so anyways.
Care to wager where those safety glasses were made?
While everyone is focusing on Greece, China is freaking pissed off. Ye had best look east gang way past Greece. Odds are Russia will follow through on its 50 billion Euro loan to Greece to buy them off as an ally after the IMF and EU pony up.
China has had it with Obama and the Fed. I'm just sayin'.....
How safe are US debts?
AAA as long as FED doesn't get audited and can print and hide and print and hide and put on a magic show.
The irony is that we've been there before. It ended badly for Europe and the US profited as usual.
first off "isn't this good news"? obviously our debt Moses called Uncle Sam has successfully parted the seas and now for those who haven't trusted in the powers that be you better get movin' because pretty soon the water will be rushing back in. second we're watching the birth of "the new normal." surprise, surprise! it's more expensive. third, the idea that "getting a job" or even "getting a life" isn't relevant in this brave new world is unfortunately untrue. fourth cash is and always will be king so long as the USA is in effect "ruling the world." we are of course a shockingly poor nation and that is of course the irony since "we're the richest country in human history." God save the Queen, now go be the greatest Americans ever and clean out Europe because sometimes the kill the squid you have to be the squid.
Simon sounded more concerned than usual in that post. I think we should start to worry...NOW.
As goes Iceland and Zimbabwe, so goes the world....global jubilee it will be...all sov. debts will be defaulted on or be inflated away, and we will re-boot the hard-drive...wonder what the new world will look like...
"Despite these limitations, "This Time Is Different" is an important addition to the literature of financial history. It also issues a worrying economic forecast. Currently the markets are discounting a rapid and sustained recovery from the global economic meltdown. Around the world, governments are borrowing very large sums at very low rates—assuming that stimulus spending will generate future taxes to pay off the current debt binge. But Messrs. Reinhart and Rogoff's work points in a rather different direction: toward the potential for future national debt crises and rising inflation. Of course, this time may be different. But don't bet on it."
"This time wasn't different" is going to be the epitaph of Western Civilization at the rate we're going...
All the ratings cabal are belong to us.
So we continue speculative attack against the euro's weaker members. There can be only one, Highlander.
+100
The ratings cabal put its stamp of approval on rotten mortgage backed securities before they got sold to Euro banks and other European investors.
All roads lead back to ... the cabal.
Merkel can finish this chimpanzee act with one simple question. Where does it all end?
Kapute ist!
A joke I heard today:
- "What do you call a financially responisble person in Greece?"
- "A German tourist."
I think this joke explains it all.. Take Greece and put Spain, Portugal, Italy etc etc..
ah, like Germany is so clean...they and their banks loans to East Europe are hiding many nasty things ...the cats can say they are neat and clean because they use litter and bury their mess in a designated location while Spot runs amok in the backyard...but really, the cat walks thru the litter and jumps on the counter top, and just because you can't seen the poop does not mean it does not exist...
Even more to the point, is once everyone starts looking at the weakest link with a more critical eye, all of the others then must be similarly viewed. and even with a repair on Greece, the proverbial cat is out of the bag, and I think it is hard to predict all of the consequences. Not unlike September 2008.
Although there is obviously no set rule on this, I think sovereign risk contagion is a lot like gangrene. Once it sets in, absent major surgery, even amputation, it spreads to even once-healthy portions of the body.
Gee. S&P is now only six months behind everyone else in the universe. It is me or does AA sound a bit robust for Spain?
Not if it's a hotel :)
The term " shared fiscal authority " simply means that when everybody is in charge, nobody is in charge.
yes,yes...contagion and all that.....i KNOW, i get it.. - its just there was no word on cameron diaz in your peice!