As Greece Crashes And Burns, Troika Arrives In Portugal With "Soothing Words Of Support"

Tyler Durden's picture

What is better than a one-front European war on insolvency? Why two-fronts of course. But not before many "soothing" words are uttered (no really). From Reuters: "Portugal's international lenders arrived in Lisbon on Wednesday to review the country's bailout, with soothing words of support likely to dominate as Europe gropes for success stories to counteract its interminable Greek headache. As the euro zone's second weakest link, Portugal's ability to ride out its debt crisis will be key to Europe's claim that Greece is a unique case. Despite a groundswell of concerns that Portugal - like Greece - may eventually have to restructure its aid programme, the third inspection of Lisbon's economic performance in the context of its ongoing 78-billion-euro rescue should make that contention clear. "The review will be all about peace and harmony," said Filipe Garcia, head of Informacao de Mercados Financeiros consultants. "The important thing for Europe is to isolate Portugal from Greece, to put it out of Greece's way in case of a default or even an exit from the euro." That makes sense - after all even Venizelos just told Greece that the country is not Italy. And if that fails, the Don of bailouts, Dr Strangeschauble will just give the country will blessing to use a few billion in cash. Oh but wait. It can't. Because as as we pointed out in late January, and as the market has so conveniently chosen to forget, Portugal, unlike Greece, has simple, clean and efficient negative pledge language in its non-local law bonds. Which means "no can do" to any additional bailouts under its current capitalization. Which may very well mean that Portugal is stuck with its existing balance sheet unless the country succeeds in doing an exchange offer which takes out all UK- and other strong-protection bonds. All of them. And as Greece has shown, that is just not going to happen.

As a reminder:

Portugal Reenters Bailout Radar As Traders Realize Greek "Rescue" Model Is Not Feasible Here


Remember when Europe was fixed, if only for a few weeks? Those were the times, too bad they are now officially over. EURUSD is back under 1.30 in thin volume because even as we "shockingly" find that, no, Greece did not have the "upper hand" since Greek bondholder negotiations just broke down (and that over the matter of a cash coupon delta between 3.5% and 4.0%, which implicitly means that from a bondholder IRR perspective, when taking a 15 cent EFSF Bill into consideration, the hedge fund community fully expects the country to be in default even post reorg in at about two years). But it is that "other" European country which was recently junked by S&P (causing the 10 year to soar to new records), that is now the focus point of (re)bailout concerns. Reuters reports: "The euro nudges down some 20 pips to $1.2995 in thin, illiquid trade with Tokyo dealers citing renwed fears Portugal may need a second bailout. Undermining the glow of Lisbon's achievements in reforming the country's labour market is the rapidly rising market concern that it is the next potential candidate to default in the euro zone after Greece -- a point that is fast becoming clear as Athens approaches the end of its debt restructuring talks." And here is the paradox: if Greece succeeds in persuading the ad hoc creditors to accept a 3.5% coupon, which it won't absent cramdown and CDS trigger, Portugal will immediately if not sooner proceed with the same steps. There is however, a problem. Unlike Greece, where the bulk, or over 90%, of the bonds are under Local Law, and thus have no bondholder protections (a fact about to be used by Greece to test the legal skills of asset managers who can retain the smartest lawyers in the world and generate par recoveries on their bonds in due course), in a generic Portuguese Euro Medium Term note Programme prospectus we find the following:

Oops: negative pledge (a simple one at that, not that garbled monstrosity of verbiage that some Greek bonds have) and UK-law. Looks like the Greek Modus Operandi of dealing with its uber-leverage problems will be quite hindered (read impossible) when its comes to Portugal, where a substantial portion of its sovereign debt actually does have significant creditor protections. It also means good luck not only trying to enforce a coercive cram down, but also attempting to layer on a primed piece of debt with liens on top of the EMTNs (i.e. IMF bailout capital), without every asset manager in possession of these bonds suing the country into oblivion at a London court of law.


Finally look for creditors to flock to these bonds at the expense of any other bonds (Interbolsa, older issues) that do not, as we predicted over the weekend.


So much for the Greek deleveraging case study applied to other European countries: think fast Troika.

As a a further reminder...

Schaeuble Blesses Gaspar: German FinMin Promises To Rescue Portugal


In an incredibly candid 'informal' discussion caught on video by Portugal's TVi24 television crew, German finance minister Wolfgang Schaeuble gives Portuguese finance minister Vitor Gaspar 'the nod' that after the Greek deal is done, Germany will relax the conditions of the financial assistance program for Portugal. While the soundtrack is a little flaky, it is clear that the German finmin notes they must remain resolute in their conditions against Greece in order to maintain the appearance of 'seriousness' with the fellow members of the Greek parliament and more importantly the people of Germany. It would appear that once they have flexed their muscles against the Greeks (think Lehman?) then (and only then) can (and will) they 'help' the Portuguese. Perhaps the hard default is the way they expect this to play out with the assumption they can post-hoc avoid contagion in some manner but nevertheless, Samaras' comments this afternoon on growth and a focus away from austerity do not sit in any way complementary to Schaeuble's comments in this candid-camera moment.

Portuguese TV is having a field day with the clip as they note: Vítor Gaspar was "looking like a student trying to impress the teacher," was how the commentator saw the episode. Adding, the minister "did everything but say that not only is doing everything right as even very fond of the austerity policy."


The full transcript is here (via Google Translate):


Talk quietly and when the two thought not being heard, was held on Thursday in Brussels during the meeting of European finance ministers and was captured by a camera TVI. Schäuble told Gaspar that Germany was willing to relax the Portuguese aid program, but after you solve the problem of Greece. "Thank you very much," said the Portuguese Minister of Finance. Vítor Gaspar said after the German minister: "We made ??substantial progress in the European context." "Yes, they did," says Schäuble. Pedro Passos Coelho said recently that Portugal does not need more time or more money to fulfill according to the European Union and the International Monetary Fund. "Portugal will not ask for a renegotiation of the program is running. (...) He said it clearly in Parliament and I will reaffirm it: Do not ask more time or more money to implement the program, "said on January 24, during a press conference.


Transcript of the conversation in its entirety Wolfgang Schäuble: If at the end we need to make an adjustment to the program [Portuguese], having taken large deciosões about Greece ... This is essential. But then, if necessary an adjustment of the Portuguese program, will be prepared. Vítor Gaspar: Thank you very much. Wolfgang Schäuble: No problem. Since ... It is that members of the German parliament and public opinion in Germany does not believe that our decisions are serious, why not believe in our decisions about Greece. Vítor Gaspar: We made ??very substantial progress in the European context. Wolfgang Schäuble: Yes, you did progress. Vítor Gaspar: Yes, we did. And now we have to work ...


Video is not embeddable so click picture for the link...



And for everything else, there is Reuters:

The troika of officials from the European Commission, European Central Bank and IMF are expected to stay in Lisbon for about two weeks.


Portugal was hit in January by a loss of confidence after its rating was downgraded to junk by all the major credit agencies, prompting fears it would need to seek more bailout funding or even be forced to restructure its debts like Greece.


The assumption was fuelled further by comments by German Finance Minister Wolfgang Schaeuble, who said last week Germany was ready to "adjust" Portugal's loan programme.


But the experts from the troika, fresh from encountering Athens aflame in protests against further austerity measures, are likely to emphasise Lisbon's success so far in cost-cutting and economic reform that have sparked a deep recession.


"A principle theme of this mission, in terms of communication, will be to underline that no renegotiation of Portugal's programme is on the table," said a source close to the troika.
Portugal has been rewarded in the past two weeks with falling bond yields - after they hit euro-era peaks in January - and on Wednesday it carried out its largest debt auction since it first requested a bailout last year.


But the country's benchmark yields remain worryingly high, with 10-year bonds trading at a touch over 12 percent on Wednesday.


The troika will be mindful that if further austerity is foisted on Portugal, the relatively modest economic contraction seen at 3 percent this year could deepen, undermining fiscal improvements like in Greece.

Finally, the only thing better than a two-front "war", is a three-front one. Which too is coming shortly.

The period of transitory peace in Europe is coming to an end.

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Mongo's picture

The maffia moves in for the kill

TruthInSunshine's picture

Joe Wiesenthal of that legendary of financial media source, BI, is apparently distraught and threatening to jump from the ledge of the first floor of his building, and Henry Blodget (former sell-side, bubble blowing, stock selling shoe-shine boy wonder extraordinaire at Merrill Lynch - now owned by the epic banking genius that is Bank of Ameria) is trying to talk him down, because stocks fell today and he heard some comments about how Bernanke, Geithner & Obama are incompetent over the weekend.



AlaricBalth's picture

Einstein dies and goes to heaven only to be informed that his room is not yet ready. "I hope you will not mind waiting in a dormitory. We are very sorry, but it's the best we can do and you will have to share the room with others" he is told by the doorman.

Einstein says that this is no problem at all and that there is no need to make such a great fuss. So the doorman leads him to the dorm. They enter and Albert is introduced to all of the present inhabitants. "See, Here is your first room mate. He has an IQ of 180!"
"That's wonderful!" says Albert. "We can discuss mathematics!"

"And here is your second room mate. His IQ is 150!"
"That's wonderful!" says Albert. "We can discuss physics!"

"And here is your third room mate. His IQ is 100!"
"That's wonderful! We can discuss the latest plays at the theater!"

Just then another man moves out to capture Albert's hand and shake it. "I'm your last room mate and I'm sorry, but my IQ is only 80."

Albert smiles back at him and says, "So, where do you think interest rates are headed?"

drink or die's picture

A friend recently told me that he was trading stocks on E-trade.  I asked him where he got his financial news from, and the first place he mentioned was BI. 


Is my friend Robotrader? 

knukles's picture

It's not right to make fun of the retarded.

Hulk's picture

Maybe so knuckles, but they sure are fun to watch !!!

Bam_Man's picture

"No one expects the EU inquisition!"

TruthInSunshine's picture

The jackals of fractional reserve banking, doing the bid of their masters, will come for Portugal next...despite the sweet, kind words of assurance. And then rinse, wash and repeat, right down the line... Ireland, Spain, Italy, bitchez.

"Now after Portugal signs off on Greece's death certificate, Portugal's got the jackals of fractional reserve banking - we call them The Red Shield Boys - as partners. Any problems, Portugal goes to indirectly to The Red Shield Boys. Trouble with the bills? Portugal can go to The Red Shield Boys. Trouble with the ECB, IMF or World Bank? - call The Red Shield Boys. But now Portugal's gotta come up with their money every day, no matter what. Economy is bad? F**k you, pay us. Oh, you had a natural disaster? F**k you, pay us. Involved in a military skirmish that threatens energy supplies, huh? F**k you, pay us. Internal political crisis is brewing domestically? F**K YOU, PAY US. What's that? You can't pay us? Well, we always did fancy your utilities, other public infrastructure, toll roads, bridges, dams, farmland, precious metals, natural resources and daughters, too, bitch."


"If you're part of a crew or monetary union utilizing a common currency, nobody ever tells you that they're going to kill you. It doesn't happen that way. There weren't any arguments or curses like in the movies. So your murderers come with smiles. They come as your friends, the people who have cared for you all of your life, and they always seem to come at a time when you're at your weakest and most in need of their help."


bkwaz4's picture

I'll take Gerald Celente for 500, Alex.

Nassim's picture

You should read the book - "The Last Mafioso: The Treacherous World of Jimmy Fratianno" - about Jimmy Fratianno

He explains how the mafia assasinated its own soldiers. Essentially, they would prepare a hole in the desert of Nevada for the body, then they would meet up with their tageted colleague at some pizzeria. Afterwards, they would all go to the house of one of them. Others would be waiting and as soon as the victim stepped in to the house, the one behind would hold his arms to his sides and the ones already inside would put a rope around his neck and pull it against each other. The victim would shit in his pants and die without any sound being made. They would bundle him into a rug and place him at the back of a car and take him to the prepared hole. Someone would stay behind to clean the shit from the floor.

Do you not see any resemblance to what is going on in Portugal right now? The Portuguese finance minister has been invited by the Germans to share a pizza. As for Greece, they are now at the point where the guy behind holds the arms and the rope is about to be dropped around the neck. Simple.

JailBank's picture

This is jsut setting Europe up for a "Summer of Recovery" just like we had in the States.

BudFox2012's picture

Theve sucked Greece dry, time for the bankster vampires to move to their next victim.  Where's Blade when you need him....

achmachat's picture

you do realize that Blade is just a fictional character...?!

BudFox2012's picture

No shit, really?  Some people don't understand tongue and cheek humor I guess...

Besides, most of the numbers the bankster crooks cook up are fiction anyway, so you might as well have a fictional character deal with it...

achmachat's picture

" Some people don't understand tongue and cheek humor I guess.."

i rest my case.

EyeQ's picture

Much like the markets

kito's picture

keep building that ring fence.................

pods's picture

From my eyes the horses they are attempting to keep in are already holding the soles onto the bottom of my shoes.


Flounder's picture

The Troika is making these visits faster than the blitzkrieg.

stocktivity's picture

Trioka must be gaining weight with all those 7 course dinners on their taxpayers dime.

falak pema's picture

I have a feeling of seeing an old film where Stalin lets burn a surrogate satrapy condemned to its own bankruptcy under Kulak rule; or a banana republic in Central America and US/CIA control; burn baby burn you are of no use to us. 

The wages of sin, are paid by the innocent for the crimes of their Kulak rulers.

Cdad's picture

Peace is "transitory", bitchez!

Dick Darlington's picture

Waiting for Mr Rehn's famous "kiss of death" part 2. I think it was abt two weeks after the head of europonzi "praised" Portugal, told it had won the market's CONfidence and def wouldn't need a bailout, when Portugal caved in and begged for assistance from the hollowed out tax payers of Europe.

knukles's picture

Hah ha ha ha ha ah ah aha aha ah aha ah ha.
You hear the one about the nice Portugese girl....

PhattyBuoy's picture

Had a nice portuguese girl once ...

She could almost braid her forearm hair ...

The4thStooge's picture

Shhh, there there now, don't cry. This won't hurt much. Just relax. Here, we'll even use a bit of lube...

carbonmutant's picture

Schäuble is even willing lend Gaspar a team of Finance managers to help with the adjustments in the Portuguese programme

Apeman's picture

Kick them back to where they came from!!!

monopoly's picture

Never ending. On and on.

ChacoFunFact's picture

Five Things to Know About the G20

"the fact that the g20 has allowed the IMF to monitor the behavoir of its own members and act in a surveillance fashion is really a reflection that we just cant take for granted that countries will do what they say they are going to do."

"the global financial system is too fragile to operate without a watchdog"

Scalaris's picture

God damnit Tyler stop harshing my mellow with all these facts, and shit.

I need to believe.

PhilB's picture


Tyler is once again out in noman's land with this absolute rubbish of Portuguese Negative Pledges. Portugal has ALREADY received a bailout. So HOW could that be if NEGATIVE PLEDGES worked? Tyler fully ignores this and runs on about the 2nd bailout for Portugal being illegal due to these Negative Pledges. As I have warned him before, Negative Pledges do not work for a Sovereign as they do for a Corportation. Sovereigns can issue debt at will. The only thing the Negative Pledges may do is prevent the Sovereign from directly securing assets against a loan. IT DOES NOT affect its ability to secure new debt and loans that are senior unsecured!!


BudFox2012's picture

Tomorrows CNBC Headline: "Futures Rise On Portugal Debt Hopes"

ACP's picture


Can they put more clearly what they expect to happen to Greece? Beautiful!

tobinajwels's picture

Ok so what happens now? could someone please give me a step by step view on this. I only trust zero hedge, thanks.

1835jackson's picture

Jan and Feb 2012 = Hopeium

March/ April 2012= Swing time. Either bailouts or bust. IMF saves the day?

May/June 2012= FED QE

Otherwise fucked if I know.


stocktivity's picture

Early November - obama re-elected due to republicans blowing a golden opportunity by not fielding a viable candidate.

Early 2013 - markets begin a year long crash

azzhatter's picture

The troika is like a cancer spreading throughout Europe

Pancho Villa's picture

Troika? You mean the NKVD Troika?

Dan Conway's picture

Silly me - I forgot that the market sometimes goes down.  Do you think that purchasing a 3x AAPL hedge fund might have been a mistake?  I think I will purchase some Portugese and Spanish debt because those yields look attractive.

shuckster's picture

Proshares UltraPro AAPL? Has a nice ring to it... 

dwdollar's picture

Every country in the world with a debt problem will behave just like Greece when they are shoved into austerity. Greece isn't unique.

Atomizer's picture

This EU novel has so many exciting chapters. Cannot wait to read the part about Italy & Spain.


TruthInSunshine's picture

It starts out as a real tease and page turner, and before you know it, it's combusted into a true barn burner!

swani's picture

They will finish with Europe and then start making their way over to the States. That's when the NDAA will come in handy.

Acet's picture

Translation of the first part from a native speaker 'cause Google Translate was getting on my nerves:



The talk, in low tones and when both believed they were not being overheard, happened last Tursday in Brussels, during the european finance ministers meeting and was captured by a camera from TVI.

Schäuble was telling Gaspar that Germany was available to make the Portuguese help program more flexible, but only after the Greek problem was solved. "We really appreciate it", answered the Portuguese finance minister.

Victor Gaspar continues by saying to the German minister: "We've made substantial progress within the european framework". "Yes you did", answers Schäuble.

Pedro Passos Coelho stated recently that Portugal does not need any more time or money to fulfill the agreement with the European Union and the IMF.

"Portugal will not request the renegotiation of the program which it's executing. (...) I said it clearly to Parliament and I will reaffirm it: We will not ask for more time or more money to fulfill the program", he stated on the 24th of January during a press conference.