Portugal Is Next: Improverished PIIG Demands US Assistance, Debt "Haircut" To Come Next

Tyler Durden's picture

It has been just over 48 hours since our call that PIIGS the world over will scramble to demand the same concessions that were just granted to Greece courtesy of its economy being in the toilet and getting worse (thanks to lies to misrepresent the Greek economy as being worse than it really was). We already got Ireland yesterday. Now it is Portugal's turn. Reuters reports that "Portugal asked Mexico on Saturday to tell fellow G20 members next week that the United States should offer "financial help" to resolve the euro zone sovereign debt crisis, describing it as a "systemic and global" problem, a Portuguese government source said." Of course, the "US" is a clear proxy for "everyone else" - that the US, whose politicians can't agree on a fiscal stimulus for the US, let alone for some country by the straits of Gibraltar they have never heard of, will not move an inch to save Portugal is a given. Which means that once Portugal is, as it anticipates perfectly well, shut down by the US it will commence demanding for help from those who at least can grant it - the EMU and the Eurozone. And when those refuse, Portugal will do the glaringly obvious: take a page right out of the Greek textbook and proceed to suicide its own economy. And why not - it worked miracles for Greece. Now: two down and two to go. The only question is when does Italy do precisely the same logical next step, and tell the world that its $2+ trillion in debt, the second most in the Eurozone after only Germany, is unsustainable, and will need a modest haircut. 20% should do it. We wonder, what will that do to French banks (and their "perfectly hedged" US proxies - such as MF Global and others)?

The story from Reuters:

"The crisis isn't in the euro zone. It is a systemic and global crisis and we hope that other big G20 countries intervene," the source told reporters in the capital Asuncion, speaking on condition of anonymity.

 

The source added that Washington should help resolve the crisis "by boosting trade and also with financial help."

 

No one from Calderon's delegation in Asuncion could immediately be reached for comment.

 

Financial markets rallied strongly this week after European leaders hammered out a deal to recapitalize their banks, boost the firepower of a euro zone rescue fund, and impose hefty losses on holders of Greek debt.

Portugal's deepending financial plight was described in great detail late last week by Ambrose Evans-Pritchard of the Telegraph:

Monetary contraction in Portugal has intensified at an alarming pace and is mimicking the pattern seen in Greece before its economy spiralled out of control, raising concerns that the EU summit deal may soon washed over by fast-moving events.

Data released by the European Central Bank show that real M1 deposits in Portugal have fallen at an annualised rate of 21pc over the past six months, buckling violently in September.

 

"Portugal appears to have entered a Grecian vortex and monetary trends have deteriorated sharply in Spain, with a decline of 8.4pc," said Simon Ward, from Henderson Global Investors. Mr Ward said the ECB must cut interest rates "immediately" and launch a full-scale blitz of quantitative easing of up to 10pc of eurozone GDP.

 

The M1 data - cash and current accounts - is watched by experts as a leading indicator for the economy six months to a year ahead. It has been an accurate warning signal for each stage of the crisis since 2007.

 

A mix of fiscal austerity and monetary tightening by the ECB earlier this year appear to have tipped the Iberian region into a downward slide. "The trends are less awful in Ireland and Italy, suggesting that both are rescuable if the ECB acts aggressively," said Mr Ward.

 

A shrinking money supply is dangerous for countries with a high debt stock. Portugal’s public and private debt will reach 360pc of GDP by next year, far higher than in Greece.

And where monetary shrinkage arrives, economic deterioration is always next. But just to make sure of that, Portugal has just set the first of many dates for a General Strike. Mark November 24th on your calendars. This is when Greece officially becomes Portugal.