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"No QE For You!": ECB May Cut "Lifeline" To Portugal After Socialists Overthrow Government
On Tuesday, Brussels and Berlin got what amounted to the worst news possible out of Portugal. In what sounds like the plot of a McCarthy-era propaganda spy novel, the Socialists and Communists have overthrown the government.
More specifically, Antonio Costa and the Socialists cemented their coalition with the Communists and The Left Bloc on the way to ousting Portuguese PM Pedro Passos Coelho's government. This came just days after President Anibal Cavaco Silva reappointed the premier on the heels of largely inconclusive elections. That reappointment represented a slap in the face for the leftists and all but guaranteed they’d move to take control.
That’s just about the last outcome Jean Claude-Juncker, Angela Merkel, and Christine Lagarde wanted to see on the heels of the summer’s fraught and protracted negotiations with Greece.
As we’ve discussed extensively, the whole point of putting Alexis Tsipras through round after round of “mental waterboarding” was to dissuade any and all Syriza sympathizers from attempting to negotiate for debt relief and/or a rolling back of austerity. If things should go south in Lisbon, it would mean that the advocates of fiscal rectitude in the EMU will be forced to watch as one of their prized bailout “success” stories turns the corner and decides “austerity” isn’t worth the trouble.
That sets the stage for more debt drama just as the EU splinters over the migrant crisis.
Needless to say, none of the above is credit positive for Portugal (although arguably, a prolonged period of political discord may have been worse) and as Bloomberg reports, the country may be about to lose its last investment grade rating and with it, its eligibility for PSPP. Here’s more:
Portugal’s government bonds, the worst performers in the euro zone over the past month, face another hurdle with a potential credit-rating downgrade that may see them excluded from the European Central Bank’s asset-buying program.
For Portugal’s bonds to be eligible for purchase, the nation must be rated investment grade by at least one major ratings company. It has already been junked by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.
But the country still holds that crucial investment-grade status by DBRS Ltd. The Toronto-based company is scheduled to review its position on Friday, raising the possibility Portugal could lose a crucial source of support.
“The fear is that if DBRS downgraded them, it would trigger Portugal falling out of the eligibility,” said David Schnautz, a London-based interest-rates strategist at Commerzbank AG. “It’s obviously something that investors have to brace for. It’s a low-probability but high-impact event.”
If Portugal is downgraded, a waiver allowing the ECB to keep buying their bonds may be possible, Commerzbank analysts wrote in a research note.
In short:
So essentially, this is just the start of the very same kind of tactics the troika used to bully Greece; that is, they'll use the fear of financial armageddon to get the political outcomes that you want. Here's Reuters explaining why Portugal may need some "tough love" now that the Socialists and in charge:
A compromise could be messy, tough love might actually help.
Cutting Portugal off could be dramatic. In 2013, Italy was gripped with similar instability and its 10-year bond spreads rose over a 100 basis points higher than Portugal's today. Cyprus was late to gain access to the programme in 2015 and it spread over German bunds was over 5 percent. Beyond Portugal, the move would highlight the limits of the ECB's ability to move markets.
So let's get this straight, cutting Portugal off would be "dramatic" and it could have a huge effect on spreads, but somehow cutting them off "highlights the limits of the ECB's ability to move markets"? That seems contradictory. It seems like cutting them off and seeing Portuguese yields soar would show just how much the ECB matters when it comes to influencing borrowing costs.
Of course all of this is farcical to a certain extent. As the chart below shows, the definition of "austerity" is apparently soaring debt-to-GDP and when it comes to driving down borrowing costs, Draghi's jawboning ("whatever it takes") is clearly more effective than the ECB's bazooka:
Still, if the ECB does cut Portugal off we'll be on the same slippery slope as we were with Greece. As we noted last month, "the ATM lines, empty shelves, and gas station queues Greece witnessed over the summer have not had their intended psychological effect in Portugal as Socialist leader Antonio Costa announced earlier in the week that he’s prepared to align with the Communists and with Left Bloc to form a government in defiance of the Right-wing coalition." But seeing another country forced into third world status and watching it happen in yours are two entirely different things and it could very well be that cutting Lisbon off from PSPP is a warning shot from the ECB which, if not heeded, could very well lead to further punitive "measures."
Incidentally, it's also worth noting that Portugal's fiscal deficit just ballooned to 7.2% (just "slightly" above target) after the country admitted that the Novo Banco bailout would likely have to remain on the government's books for the time being and make no mistake, there's nothing about a 7.2% budget deficit that Wolfgang Schaueble is going to like.
Finally, we wonder if the ECB is cutting its nose off to spite its face given the lack of PSPP eligible bonds. Of course Draghi could always just go and grab a few GGBs to fill the govie void - Greece is "fixed" after all.
* * *
Bonus color from Barclays
The elevated costs of political and policy uncertainty
Political uncertainty is having already significant costs. Portugal 10y sovereign spreads have increased to over 215bp versus Bunds and more than 90bp versus 10y Spanish Bonos. The political uncertainty takes place against a background of still elevated private and public debt. Public debt stands at c.125% of GDP, and it continues to be rated below investment grade by three of the major credit rating agencies.
Key to where Portugal’s funding costs and future ratings are heading will be the macroeconomic policies of the new government. A fundamental difference of the Socialist Party and its allies has been their proposal of less austerity. While Mr Costa has expressed his full commitment to take Portugal out of the Excessive Deficit Procedure as soon as possible by reducing the public deficit below 3% of GDP, it is not yet clear how this target squares with his proposals (and his allies’): to roll back some of the public sector wage cuts, unfreeze of pensions, reverse some privatizations (including the transport systems of Lisbon and Oporto), and cut the VAT on some goods and services. At the same time, the parties have pledged to boost public investment. In sum, the markets await the content of the economic and fiscal plans of the new government in order to assess whether they square with its overall fiscal objectives.
Will markets settle after the appointment of the Socialist Party?
Even if the Socialist Party is appointed to form a government (as we expect), we do not think that the Communist Party or the Left Bloc will enter Mr Costa’s cabinet in a full-fledged coalition. The support of these radical-left parties is likely to be on an “as need” basis and will depend on how close the Socialist’s proposals are aligned with their own parties’ agendas. These parties have already dropped some of their previous, more radical proposals, including a euro area exit and an upfront restructuring of Portugal’s public debt. However, we remain concerned about the strength of the alliance between these parties, given the traditional moderation of the Socialist Party and the much more radical stance of the other two. Minority governments in Portugal tend not to last their full term, and we do not rule out the possibility that Portugal may need to hold elections again within a year. Political uncertainty is likely to continue to weigh on Portugal’s funding costs, despite the very accommodative monetary policy of the ECB (Portuguese debt is part of ECB's PSPP programme) and the more benign macroeconomic conditions in Portugal and the euro area.
Bonus Bonus: a snapshot of the country's vulnerabilities
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Sounds like a conspiracy to me. Of course we know those don't exist in real life, just in books and on TeeVee.
have to put portugal in its place and cut off the funding. we saw this in greece, i'm not going to watch it in portugal...i know how the story ends
Portugal should just default and stick it to the banksters. Problems are are the politicians are bought and paid for, and civil servants would rather be paid in Euros than Escudos. Yet, there is no hope for Portugal, given its crushing debt.
so a country that wants cultural and financial "independence" is being threatened with the curtailing of cultural and financial "dependence".........not sure they should take that as a threat.
Greece is no longer a "sovereign" nation. Tsipras and company sold out, pity. Now the question is, will Portugal follow the same road? Time will tell.
Everytime I see one of those Euro-Latin Debt to GDP vs 10 year yield charts -- I laugh out loud.
Literally every time. It never gets old.
Portugal should declare itself a Muslim country. Then they can get all the ECB lifelines and 1500 a month in benefits for each Portugese citizen.
I guess being the Louisiana of the EU was not appealing to them?
How about West Virginia? Kentucky?
"McCarthy-era propaganda"
No such thing. McCarthy was shown to be completely and 100% right, and every single blacklisted person was, in fact, revealed to be a communist afte the fall of the USSR.
One would think that the subvversion of the US government by the communists would be obvious to everyone at this point, but I guess we aren't just a bunch of sheep so much as we are a bunch of boiling frogs.
Boiling verrrrrrrry verrrrrrrrry slowwwwwwwly...
Full boil at Yale and places like it for a few decades now.
Strictly speaking, by our constitutional law, since we cannot issue our currency, we are not sovereign. Sad but true.
It's Greece part II...
Next Season....Feel the pain with Spain....
And then...Porking Portugal. ...2017!!!
Book? What's a book? I get everything I need to know from my teevee.
Someone define "Socalist" for me?
TPP, NAFTA, world bank, ... full on corporate capture and corporate welfare is what we have!
We have the exact opposite of Socialism!
This site is a pure fear mongering and pro-private sector scam job.
It is also anti-union.
I can't tell if you're trolling or being sarcastic. MDB v3.0 ??
It must be nice to be so smart that nobody else realizes you are right. Genius is so often misunderstood.
Your marxist professors would be so proud of you.
Whaaa haa haaa!
Finance has always stood above democracy they just used to be a bit more discreet.
UK 1964 - New Labour Government (UK Left)
From Harold Wilson’s memoirs:
"The Governor of the Bank of England became a frequent visitor. . . we had to listen night after night to demands that there should be immediate cuts in Government expenditure.. . Not for the first time, I said we had now reached the situation where a newly elected government with a mandate from the people was being told, nor so much by the Governor of the Bank of England but by international speculators, that the policies on which we had fought the election could not be implemented."
Get on my knee and pray, "we won't be fool again!"
On this Veterans Day, allow me to express my sincere thanks to all of those brave men and women in uniform who fought to make the world a safer place. For fascism.
Thank you.
Yeah, whatever. We thought the same thing with Greece too, but it wasn't long before Tsipras and the new commies in "power" started sucking the banker cocks and giving them everything they want. Sorry Portugal, your country doesn't belong to you any longer, it belongs to the bankers bitchez!
This is how nation-capture occurs. Get em indebted up their eyeballs, then hit 'em with a rhythmic ass pounding in the form of "We're gonna set your fiscal and monetary policies now". This is a coming attraction for Murrica. Prepare to either hand in your remaining freedoms and assets, or prepare to fuck up the tyrants.
Here's hoping that a larger percentage of the population than ZH readers have some balls (and brains) left...
Time for Portugal to go full "Iceland"
Yep, A trend cannot occur without two data points.
Yes, above all else Portugal should not procrastinate, as did Greece, hoping that things will get better with Brussels when in fact Brussels only takes that as a sign of weakness and makes things worse. Pleasing Brussels is very much like paying a blackmailer - the more you pay the more they demand without end.
What Portugal needs, and immediately, is a second currency that is not tied to the Euro. The Escudo could be free floating, or better, tied to one of the BRICS currencies - ideally one for one at par (to boost tourism from target country). Right now, given the Egypt tourism situation introducing a freely exchangeable new Escudo worth exactly one Russian Ruble might be best. Similar to Dollars in the Bahamas.
Yes, because borrowing shitloads of money and then running away from your obligations is the right thing to do. They will all get their "independence" good and hard. Oh, no please don't cut off our cheap money!!! Cry me a river. Let them leave and go back to their devalued currency - they will be independent but they will be poor. It is probably the best thing for them though. No more Mercedes and modern healthcare but that is real life. Can't have it all.
So the Socialist Communist are saying the Socialist Communist are bad? Is this another tear in the matrix?
ZH: where commenters love socialists unless they are Sanders!
Bernie Sanders is a clown and he lost his bid for the presidency the moment he started sucking Shrillary's dick.
He can't even defend his own stage at a rally from the hood rats. He is the embodiment of leftist weakness.
It sounds like the Free Shit Army is winning everywhere....to bad they never win in the long term....but hey..if its free they want it...
I know. International bankers are the worst. Bunch of damn takers is all they are.
You do realize that commie fucks are just as bad, right?
First go and learn about Portugal shitshow , asshole.
Can't think of any better free shit than negative interest rates.
default now, be stronger than the greek wimps..
others will follow... Greeks, Ireland, France...
this could be the start!
...clearly some of you haven't got the message! This is my town! [/John Herod, The Quick and the Dead]
They need a Varoufakis
They need the actual Varoufakis, he will work as a financial consultant for them if asked.
The ECB/ Brussels / Merkel will do to Portugal the same as they have done in Greece, hopefully the left will not allow it, but alas...
Well the can't say they were taken by surprise and so did not have counter measures ready.
Enjoy your utopia!
portugal's booming economy, low taxes, minimal social spending and increased immigration under this strong new leadership will pull them out of this funk (lol)
in portugal we are the ones that pay more tax in all the europe with 500 euros of minimum wage(frence 1200/germany 1800 etc) with the 23% tax when we go to the store buying food or other things, renting an house is 250 euros by month, do the math 500(1-0.23)-250=135 with food more share than spain and france and with electricity at 50 euros we don't have money to buy food.
This is the reality of portugal, we are more like latin america than europe, the rich get richer the poor die.
Time to move your money somewhere a lot safer before it really gets ugly.
Strong Brazilian influence ("no more of this shit") in Portugal...lots & lots of extended familias
The entrenched socialist are going to cut off the upstart socialists for unsound fiscal policies. This is the very definition of irony.
socialim.. the ultimiate deal with the devil. Go galt NOW anyone with half a brain in Portagal.
If we want the ridiculousness to end, strip the Fed of its dual mandate.
https://petitions.whitehouse.gov//petition/repeal-1977-amendment-federal...
Strip the fed of its life
Democracy and Free Enterprise capitalism, Socialism or Communism, anyone of them is better than Fascism (merger of monopoly corporations with government) or, if you prefer; call it Empire Corporatism.
Fascism over the last 400 years is so barbaric and archaic that modern humans reject going back to wars, slavery and the destruction that Fascist bring to our Earth.
The bankster 21st. Century Fascism is more barbaric than the last 4 centuries combined. Maybe, the Socialist and Communist will bring the bankster Fascist to Justice.
I'll take corporatism over socialism or communism any day of the week. At least then, there's still some semblance of markets. Leftism is tge most destructive force on this planet
In reply to hick: Democracy and Free Enterprise Capitalism defines "Free Markets". In monopoly corporatism there is no free markets. Where have you been over the last 60 years feeding on fascist globilization empire propaganda?
Upvote. Same old story, when you squeeze the working folks too hard, you get your typical battle royale between Fascism and Socialism.
Portugal has replaced Greece as the whipping boy. I am thinking that all of the PIIGS and all of the Eastern European countries need to leave the EU and regain their independence and self respect.
Leaving the EU would play right into the hands of London. For the love of God is there nobody intelligent enough here to realise the division of Europe is precisely what Anglo-America wants? Who the hell are these so-called socialists working for? I guarantee you it's not the ordinary working man in Portugal. It's the Lodge in London, which brought socialism into existence. A united Europe and a common currency are our only chance of resisting the depredations Zion and its sister Anglo-America want to visit upon the old Catholic continent.
Wake up people for Christ's sake! Britain has been playing this game of divide and conquer against Catholic Europe for centuries. In our time they do this through the power of the City of London, which is behind 80% of the financial trickery keeping us so-called PIIGS in perpetual debt-slavery. Yet here you are suggesting we should just capitulate and let them away with it?
More Europe is what we need, not less. A Europe united from Ireland to Russia is the only entity that will ever be strong enough to resist London and Zion. He who calls for the dissolution and never-ending fragmentation of Europe is playing right into the hands of Zion and Anglo-America.
Wasn't sure whether to give you a +1 for sarc but decided you seem to believe it, so -1.
Over the years England has been invaded by the Romans, the Angles, the Saxons, the Vikings, the Normans, with serious attempts by the Spanish, the Dutch, the French, and the Germans, i.e. by just about every part of Europe except the Greeks. And most of those ethnic / tribal / national groups was busy at various times carving up other parts of Europe.
Yet you're gibbering about the terrible Brits.
I don't see the Angles, Saxons, Vikings or Normans still raiding foreign countries a thousand years later. Britain, on the other hand, still can't get enough of pillage, plunder and regime change overseas. No sooner have they left one looted and destroyed country behind than they start making plans for the next.
That's the difference.
I think we can make a win-win out of this: Greece and Portugal agree to accept all the towelheads in exchange for continuing to pretend they aren't already in default.
\@/
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P _ G _
Zooro Hangman is fun for the whole family.
I mean, they fucking deserve it. Who is dumb enough to agree to socialist banker slavery then elect socialist idiots that run up their paper debt to insane levels??? No sympathy for these dipshits
When the socialists won in Greece, Germany, France they got and spent more money, bullish for more Yellen lies.
Cue the lie:
"I'm not gonna print"
She's gonna print, trust me.
Good now default on the debt... Fuck it.
nato has no choice but to bomb the shit out of portugal.
Greece was the proverbial canary in the EU economic coal mine. Other “Greece’s” include Portugal, Italy, Spain and France- all confronted with immense structural economic problems including- stagnant/declining economies, high unemployment coupled with anemic job growth, increasing austerity, poverty and debt. What has been Brussels/ECB response to this situation? Transfer sovereign debt from banks onto EU taxpayers and promote more austerity, making these economic problems worse. Portugal should carefully study how the Troika responded to Greece. They have created a financial disaster- essentially destroying the Greek economy, impoverishing workers and looting state assets. Portugal will be far better off standing firm and defaulting on their debt, if necessary. We are witnessing the implosion of the Euro project.
here in portugal, as a colony of german, life is good! and we do eat rabbits (coelho)...
Is there is a EUR banknote printing facility in Portugal?
If so...
Watson
The European Commission could be democratically elected. For example:
For states A, B, C, D, E ---
No. of states = 5
A 01 (A, with smallest population gets one initial electee)
B 22 (B, which has 22 times the population of A gets 22 initial electees)
C 03 (and so on)
D 02
E 12
total of electees by population = 40 = Ep
(total of electees by population)/(No. of states) = 40/5 = 8
each state then gets (total of electees by population)/(No. of states) = 8 additional electees
(No. of states (5))*(additional electees (for each state)(8)) = 40 = Sa
note that Ep will always equal Sa
Ep+Sa = 80 = grand total number of commissioners
This gives you a democracy.
"Austerity" is a communist plan ( see Soviet union under stalin) , EU is communist, communists overthrow govt in portugal... Another country to be smashed, portugal is already lost... mark my words, this is all planned ( look for Soros or soros agents in background)
So attempting to balance a blotted budget is communism? Do tell!