European Stress Reemerges As Risk Off Epicenter Following Portugal Admission It Needs €30 Billion Bailout

Tyler Durden's picture

Even as the Euro-Dollar 3 Month basis swap has contracted to a nearly 6 month low at -75 bps, on residual hopes that the LTRO will do anything to fix Europe (it won't - just compare it to the €442 billion 1 year LTRO from June 2009 which worked until it didn't for the simple reason that Europe does does not have a liquidity problem), Europe has once again reemerged as a source of risk off (not least of all because the fulcrum security benefiting from the LTRO - the Italian 2 year BTP is for the first time in weeks wider by 17 bps). Why? The same reason as always: Greece, with a touch of Portugal. As BBG observes the positive sentiment in Asia earlier was retraced in the European session, with commodities, FX, equities lower, especially after ECB demurred from accepting losses on its Greek bond holdings. What that means is that as we patiently explained over the weekend, the imminent Greek default (just listen to Soros over in Davos spewing fire and brimstone on Europe for allowing the situation to get to a place where a Greek default is inevitable) will create so many subordinated junior tranches of Greek debt it will make one's head spin. But while the fate of Greece is all but sealed, and a CDS triggered virtually factored in (note: a Greek CDS trigger, in isolation, won't have much of an impact as repeated here before - in fact it will return some normalcy to the market as CDS will be a hedging vehicle once again over ISDA's corrupt trampled corpse), it is what happens to Portugal and its bonds that has the market gasping for air. Because as Zero Hedge pointed out first, a Greek default will be impossible to be enacted in Portugal in its currently envisioned format, as stupid as it may be. In fact, due to the pervasive and broad negative pledges in most medium-term Portuguese bonds, any priming Troika bailout is impossible without providing matching collateral for everyone else under UK indenture bonds!

This is critical because so far Portuguese PM Pedro Coehlo has been saying that no additional bailout capital will be needed, as the party line demands. Unfortunately, the reason why Portuguese bonds have just blown up once again today is that someone has let the truth slip and the horse is now out of the barn.

As Reuters reports, according to Antonio Saraiva, the head of the country's industry confederation, Portugal needs more bailout funds. €30 billion should do it. Great. However that means that all of the existing bonds have to get the same liens and security protections as any new IMF loan. Translation: Portugal better prepare to see itself stripped of all assets. Yet another translation: prepre to see Portuguese bonds explode as the market slowly realizes that the Greek model does not work here.

Reuters has the smoking gun:

Antonio Saraiva, the leader of the influential lobby group with vast collective bargaining powers, told Reuters the 78-billion-euro bailout that runs through 2013 did not take into account massive debts by inefficient, loss-making public companies, especially in the transport sector.


Due to Portugal's debt crisis, foreign banks have stopped refinancing those debts and Portuguese banks had to step in, depriving the rest of the economy of loans needed for it to pull itself out of the worst recession in decades. The government insists no bailout renegotiation is needed, although it added it could receive more support if external tensions kept it locked out of funding markets.


"I'll dare to say we have a credit crunch... What is lacking is 30 billion euros," said Saraiva, who has been involved in consultations with Portugal's international lenders on the progress of the bailout program.


"I think we will need a mix of more funds and longer terms to be negotiated with the troika" of lenders from the European Commission, European Central Bank and International Monetary Fund.

Saraiva's estimate adds to a warning earlier by a former government official who negotiated the country's bailout, Carlos Pina, that Portugal may need a further 20-25 billion euros in rescue funds to finance public companies.But Saraiva said Portugal would only be able to ask for more money and time after showing more effort in meeting the fiscal goals set out in the bailout to garner more credibility.


"The troika already has a much more detailed vision of Portugal than it had when the pact was signed in May. Through this vision and through the credibility we achieve by adjusting our course, the troika will be more prone to conceding this."


"Maybe before the end of this year we could manage ... to increase the sum of the assistance to at least 100 billion euros, and extend the time terms," he said, explaining that his group told the lenders last year the country needed as much as 106 billion euros in financial assistance.


He said the troika's initial evaluation of Portugal's needs was incorrect.


"When we were first consulted by the troika we defended that the state has to have conditions to reduce the debt burden of the broad public enterprise sector, allowing and obliging banks to provide this sum of 30 billion euros to the economy."


The government says no bailout renegotiation is needed as it remains focused on meeting budget deficit targets and implementing structural reforms.


"I can reaffirm that Portugal will not ask for a renegotiation of its bailout, we will neither ask for more money nor for more time," Prime Minister Pedro Passos Coelho said on Tuesday, vowing that the bailout will not fail due to internal reasons.


But he also said Europe and the IMF were ready to help Portugal if, for external reasons, it would be unable to return to debt markets as planned in the second half of next year. Saraiva said whatever the outcome of Greece's debt crisis, the European Union was unlikely to allow the disintegration of the euro zone, and Portugal would definitely stick to the euro.


Last week, the government, unions, Saraiva's confederation and other employers' associations signed an agreement on labour market reforms, designed to make hiring and firing workers easier to help struggling companies.Saraiva hailed the agreement as an important step in the right direction, but said it only "removes one part of one obstacle" for companies, while many problems such as an excessive tax burden or inefficient justice system remained.

In other words: Portugal does need more money, but under its current capital structure, there just is no place where said new money can come in cleanly and efficiently, while diluting everyone else.


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KlausK's picture

Billions, get your billions here! Billions, get them while they are still hot from the press!

GetZeeGold's picture



No.....we definitely are not going to do QE. Put it out of your mind.



westerman's picture

There will never ever be QE again. We will se things that look like QE, are supposed to do the same things as QE but they will never be called QE by anyone except conspiricy theorists and wackos on the internet.

GetZeeGold's picture


There will never ever be QE again. We will see things that look like QE.


Well...those tricky bastages.



LawsofPhysics's picture

Exactly, Greece will default, the question is what precedent is going to be set for Portugal, who is next in line.  Fiat is going to continue t be given out, in stealth, to all these entities.  QE and direct monetization has never stopped, but the precedent set by Greece is extremely important, especially if TPTB can manage the perception that Greece indeed default, no CDS event was triggered, and now all is well with the Euro.

Nothing will change, and I mean NOTHING so long as the perception can be managed and certain critical supply lines can be maintained.  Same as it ever was.

whatsinaname's picture

Pardon me but I have been so trying keep my eyes closed to this Eurocrap (and there is so much of it) but what is this thing about UK indentured bonds ? How did the UK get involved into the Greek mess ? It seems the epicenter of all financial messes start with the UK ....

westboundnup's picture

Attended an economic conference yesterday, where the speaker noted that Portugal could be bailed out, Spain was on the cusp of too big to bail out and Italy was leveraged to the max and certainly too big to bail out.  Banks in the core EU hold the periphery debt, and have started to stop lending to one another.  So how are they planning to muddle through again?

Dick Darlington's picture

And just yday the eurostooges in Portugal said they don't need any more money from european tax payers. LOL! And btw, today is the day when Ireland pays Zombie-Anglo unsecured, unguaranteed bonds fully with money they don't have. How much? Well, take a look from the link above.

GeneMarchbanks's picture

'from the link above.'

That link was below Dick, not above, so I was confused, then I saw € 1.2 billion: more confused...

Dick Darlington's picture

My humble apologies for all the confusion, Gene. =)

The sum seems very negligible as such but when you put it in context, well, not so much. From the text:

€1,250m equal to all the new tax to be raised in Ireland in 2012 as a result of Budget 2012. More than the €800m the entire economy is expected to grow in 2012 according to the most recent IMF forecast. 0.8% of our GDP or 1% of our GNP.

Irish66's picture

Thanks Dick, I forgot that was today.

GetZeeGold's picture



Wow....some country in Euroland needs a bailout? There's a F'ing shock.



GetZeeGold's picture



It's either that or someone better pull some serious coin out their wazoo.

Irish66's picture

One for all, all for one.

GetZeeGold's picture



I'm pretty sure all are screwed.



GoodMorningMr.VanRumpoy...'s picture

Not to thread jack but, War with Iran will soon  commence.  Iran just inked  an agreement to sell it's oil for gold to India. With China to follow suit.

As Gaddafi's Ghost will tell you, everything's fine in the big time until you threaten the western International monetary system, which is the (now) semi hegemony of the Paper dollar.

Tyler Durden's picture

The next one to link to Debka's constant bullshit and unsourced hype gets banned.

lolmao500's picture

India: Business With Iran Will Continue - Official

India will continue doing business with Iran and does not see a reason to seek a waiver from the United States that would protect buyers of Iranian oil from a new round of sanctions, an unnamed senior Indian Cabinet minister said Jan. 12, Reuters reported. The minister said government officials would visit Iran from Jan. 16 to Jan. 21 to find ways to pay for oil in light of the U.S. sanctions.

battle axe's picture

Tyler, I am sorry, as a new guy I do not know what "Debka" is?

GetZeeGold's picture


I am sorry, as a new guy I do not know what "Debka" is?


She's a porn star......really no place for her on a financial website.



Sean7k's picture

Israel/Mossad propaganda voice. 

Sean7k's picture

Work for Debka? They have a long history. One article does not change who they are and what they do. Go back to AIPAC...

Pegasus Muse's picture

No.  Ad hominem attacks?  Who do you work for? Some folks appear mighty anxious to discredit the story and one source out of many. 

Ad Hominem Argument: Also, "personal attack," "poisoning the well." The fallacy of attempting to refute an argument by attacking the opposition’s personal character or reputation, using a corrupted negative argument from ethos. E.g., "He's so evil that you can't believe anything he says." See also Guilt by Association. Also applies to cases where potential opposing arguments are brushed aside without comment or consideration, as simply not worth arguing about.

Sean7k's picture

One, I did not discredit the story. You can read for understanding?

Two, well aware of what an ad hominem attack is. I didn't use one. If you can't take the time to google DEBKA and see their history, then fuck off. As for guilt by association- zionist and mossad are the poster children. Go back to aipac...


July 20, 2010
However, according to the Debkafile . an Israeli political website believed to be linked to the Mossad .


Pegasus Muse's picture

Eric King and Eric Sprott.  They seem to believe the Iran gold for oil story.  They must be part of the grand conspiracy.  Still haven't seen an official denial or refutation by a credible source.

HD's picture

Tyler - some of your best comment section posts are where you call out some knuckle dragger on their ridiculous BS. Don't take that away from us...don't ban, just belittle.

XitSam's picture

I don't know Debka from a hill of beans, but after all the downright weird or factually wrong opinions on ZH, this seems like an unusual place to draw the line. the zero hedge manifesto

Tyler Durden's picture

Spreading patently flawed disinformation from a conflicted, discredited source using ZH as a medium, which gives it implicit credibility (which it does not deserve) to confuse people and force them to do things they otherwise would not is against the very core of our manifesto.

francis_sawyer's picture

Agreed... But it's just fun to beat those a55wipes to a pulp when they do...

HD's picture

I had not considered your position. I long ago stopped questioning the credibility or integrity of ZH. It always impresses me to learn some critical information from ZH reporting - only to have it confirmed by the rest of financial news press days, weeks or month later.



Element's picture

The zh manifesto also says to not trust zh, as a source, or anything else for that matter, as the onus is on us to verify or falsify any info we read here, and to always presume an agenda is present.

Good advice.

HD's picture

I assure you, I don't mindless follow anyone or believe any source to infallible, incorruptible or beyond reproach. I believe my comments on the site (between the endless smart ass remarks I can't help but make) reflect this.

That said, I am consistently impressed with ZH - there's more due diligence here than anywhere else in the financial press at present. While I don't agree with everything (and certainly not everyone) - in my mind, Zero Hedge's track record allows the benefit of doubt...manifesto not withstanding.

ucsbcanuck's picture

And TD is up front about it. Many other news sources aren't. I don't believe everything I read on ZH as well e.g. RM bashing Apple. But some of the articles here are phenomenal - the subordination article and the rehypothecation ones really stand out in my mind.

I think we all have to do the work and due diligence when it comes to anything we read, and it's good that TD says that and encourages it actively.

For example, we see that the BDI is dropping like a rock - the question is why? Some will tell you that it's because world trade is falling like a rock. Some will tell you it's because there's an oversupply of dry bulk carriers. You have to figure it out for yourself.

What I do like about ZH is that people will point out the FACT i.e. the BDI is dropping like a rock. Now it's up to you to figure out the why.

Element's picture

because world trade is falling like a rock. Some will tell you it's because there's an oversupply of dry bulk carriers.


Perhaps the fall off of trade creates the oversupply, and not just overbuilding?

kito's picture

spreading patently flawed disinformation from a conflicted, discredited source?????......shirley you must be referring to goldman sachs???????...whose sprayed venom is always highlighted here.................

Tyler Durden's picture

With Goldman, their agenda is transparent, and as in the case of Stolper, among many others, has allowed readers to profit on countless occasions. With Debka, his only agenda is to generate page views by spreading sensational and flawed disinformation.

kito's picture

goldmans agenda is transparent? only those savvy and learned enough (thanks to you tyler) to know their only agenda is to make money regardless of truth or morality. goldman is undoubtedly highly conflicted and constantly spreading flawed disinformation about whats really going on in the markets. i fail to see much of a difference.

HD's picture

Don't call me Shirley.  

XitSam's picture

Well, I can't find any links that show their information to be flawed or discredited in the first three pages of a google search. Bias, yes, but so is everything. Perhaps this Tyler would be so gracious as to share the information that shows the "patently flawed disinformation from a conflicted, discredited source."

XitSam's picture

That's what I suspected.

Element's picture

This is bullish, right? ... credit crunch ... good for stocks, right?

fonzannoon's picture

Here is why I call BS. Just a few months ago EVERYONE was screaming that a Greek default would be Lehman X10. the reprecussions would be felt all over. Now a Greek default really would not do any harm at all......BUT A PORTUGAL DEFAULT!!!!! Heaven forbid! Just wait 2 months and a Portugal default will be no problem.

Tyler Durden's picture

The Greek default sets the stage for all future defaults, hence why it has far greater implications for the downstream dominos than anything Lehman-related. Just as a Portugal default then would have even more serious repercussions for Spain and Italy and so forth. This really should not be that complicated.

Perhaps it is time to bring back Captcha

GeneMarchbanks's picture

+1 on the 'bring back Captcha' 

A sovereign default gets rid of the taboo no doubt.

Central Bankster's picture


The comments are just reflective of the overall bullish sentiment.  Nothing can go wrong or its all priced in etc.

Element's picture

Or go back one step further, and Dubai was the HOPETM archetype ...

Except when it came to Greece the ECB is both constrained politically and is losing cred fast, because it only has its contracts, and a captive taxpayer base, who may (i.e. will) abandon their listing cruise ship.

So the archetype is morphing, mutating ... no one knows what into.

At least the UAE had some assets.

"The love boat soon will be making another run ..." <[Credit] CRUNCH!>


EDIT:  wonder what happened to that nice Iceland archetype?