Portugal

Humpty Van Rompuy Has Fallen Off The Wall

Europe also allows for sovereign debt to be counted as risk-free assets and not marked-to-market. Many nations, Spain is one example, allow for Real Estate loans, mortgages and even commercial loans to be carried at face value as a matter of financial engineering. I think it is a bad joke but the bite has come. This occurs when the loans no longer pay and the revenues are no longer present no matter how you carry them on your books. Then, if the banks try to off-load the properties they have assumed they take losses which are real losses and have to be accounted for on the books or they are securitized and placed as collateral at the ECB which then hides the problem for a while but not indefinitely and the “indefinite” has run out of time which is why any number of banks are calling “Uncle” and why the sovereign nation nations are crying “Uncle” and trying to deflect their problems first back to the ECB and then to find some new scheme so that the country does not fall victim to the Men in Black. All fine, all dandy, but, once again, the central issues are not dealt with and all of the schemes like all of the King’s men and horses cannot put Humpty back together again.

Humpty has fallen off the wall.

Guest Post: The Welfare Kings Of Europe

In spite of the fact that 85% of Greeks want to stay in the Eurozone, I was reasonably confident that Greeks would support Syriza to a first-place finish, and elect a new government willing to play chicken with the Germans. However Greeks — predominantly the elderly — rejected change (and possible imminent Drachmatization) in favour of the fundamentally broken status quo. But although Syriza finished second, the anti-bailout parties still commanded a majority of the votes.  And New Democracy may still face a lot of trouble building a coalition to try to keep Greece in the bailout, and in the Euro . There has long been a rumour that Tsipras wanted to lose, so as to (rightly) blame the coming crush on the status quo parties. What fewer of us counted on was that the status quo parties wouldn’t want to win the election either. The pro-bailout socialists Pasok have thrown a monkey wrench into coalition-building by claiming they won’t take part in any coalition that doesn’t also include Syriza. This seems rational; when the tsunami hits, all parties in government will surely take a lot of long-term political damage. Pasok have already been marginalised by the younger and fierier Syriza, and Pasok presiding over an economic collapse (for that is undoubtedly what Greece now faces) would surely have driven Pasok into an abyss. The economy is such a poisoned chalice that parties seem willing to fight to keep themselves out of power.

What Is Next For Greece?

One European think tank which has been spot on in its skepticism over the past two years, is OpenEurope. Below they share their views on the next steps for Greece.

Troika Considering Changing Irish Bailout Terms, RTE Says

The Spanish precedent is indeed spreading, and as noted here previously a week ago, the Irish demand to get equitable treatment may be about to be granted:

  • TROIKA CONSIDERS CHANGING IRISH BAILOUT TERMS, RTE SAYS

However:

  • BROADCASTER RTE DOESN'T CITE SOURCES FOR BAILOUT REPORT

So most likely just a trial balloon to see the European response. But why not? What is the downside: Europe blinked and now it is up to the peripherals to demand the same. Next up: Portugal, Greece (again), and again... Spain. And so on, until the socialist utopia finally does run out of other people's money.

Phoenix Capital Research's picture

 

While everyone else is focusing on the Greek elections, the REAL issues pertaining to the EU (namely where the funding for Spain’s bailout as well as future bailouts will come from) continues to be ignored. Indeed, no one seems to be asking THE key question regarding the EU: Just WHERE is the money for this bailout going to come from?

 

Monday Will Not Be The End Of The World, Sorry

Perhaps all of this has gone on for so long, or perhaps because we keep hearing the cries of “Wolf” each week for the last several years, that the markets are impervious to any new cries for help. An odd kind of complacency seems to have set in where nothing matters too much and everything will just be fine. Yesterday’s equity market rally based upon the central banks providing liquidity is just what any serious observer would expect and yet the stock markets rallied as if this was something out of the ordinary which clearly demonstrates either the market’s lack of understanding of real world events or it represents the hype of some hedge fund that was tossed around in the media like it was a new product at Apple. In any event, don’t wake up on Monday morning and think that Greece will have left the Eurozone and returned to the Drachma. That is not how things will play out. In the final analysis it probably all comes down to what price the Germans are willing to pay for dominating Europe.

The European Scorecard: 2 Out Of 5

There are five problems that need to be resolved within the European crisis and Credit Suisse provides a scorecard for the progress towards these 'risk factors'. The key issues are: growth, peripheral current account balances, solvency of the insolvent, ring-fencing the insolvent, and mutualization of government debt; but what is more worrisome is that while they have raised the average score to 2.0 out of 5 (from 0.6 out of 5 in Nov' 2011), it has not budged now in four months. The lack of growth, fiscal tightening, continuing insolvency concerns and excess leverage in the private sector, and de minimus deleveraging in Spain, Greece, Portugal, and Ireland leaves the vicious circle of progress on the European scorecard much harder from here.

Guest Post: Compassion – Killer Of Society?

Greece, Spain, Portugal, Italy and others besides have fallen into the trap of bribing their electorates with promises that become ever more unsustainable. In each of these states, expectations have been created that cannot be met and that cannot now be undone. This is surely a recipe for social unrest. These will not be the only countries to succumb to failure. The national debt, the unaffordable long-term cost of social security, health care and a myriad other entitlements and the mounting evidence of the insolvent state point to the same outcome for the UK and the US. Failure is ensured; the more pressing question is, what happens next?

Bond 'Parishioners' Are Leaving The Euro 'Church'

Mark Grant has been on Wall Street for thirty-eight years now. You may claim brains and brilliance and the best investment committee this side of Alpha Centauri but he can smell the napalm in the morning and his nostrils are jumping as if infused by pepper gas. It was in the spring of 2010 that he concluded that Spain was going to get put in “time out” and put it in black and white. Yesterday as Moodys downgraded Spain by three notches to just above junk and likely today the Spanish banks will feel the pain and as the yield on the Spanish ten year is just under 7.00% the heat is on and the stove has been turned up to high. The Italian 10 year yield is 6.25% now and financial markets operate as a matter of faith and it is obvious that the parishioners are leaving the church. There should be no surprise that Greece and Spain and Portugal and Ireland keep asking for money and it should not shock anyone that many clever schemes have been postulated to try to get Germany’s money and it should also not surprise anyone that Germany mouths all kinds of nice and polite phrases to object but in the end Germany will keep rejecting any plot that will lessen their lifestyle.

Spain Loses Final A Rating With Moodys Downgrade To Baa3, May Downgrade Further - Full Text

The most effective response for Spain would be to de-link sovereigns and their banks, following recent steady accumulation of sovereign debt by peripheral banks, in our view. Reducing the link between Spanish banks and the sovereign remains one of the key aspects for relieving pressure on Spain, whether this be by removing sovereign debt from balance sheets or ensuring sufficient capitalization to absorb losses. Unemployment out this morning at 24.4% shows the fragile state the economy is in, which is likely to keep pressure on Spanish yields. Against this backdrop the effect on the asset side of balance sheets is concerning, with expected weakness in non-core government bond prices coupled with a weak economy decreasing individuals' and corporates' ability to repay