Portugal

On Capital Controls

What are capital controls? Simply, capital controls are policies which restrict the free flow of capital into, out of, through, and within a nation’s borders. They can take a variety of forms, including:

  • Setting a fixed amount for bank withdrawals, or suspending them altogether
  • Forcing citizens or banks to hold government debt
  • Curtailing or suspending international bank transfers
  • Curtailing or suspending foreign exchange transactions
  • Criminalizing the purchase and ownership of precious metals
  • Fixing an official exchange rate and criminalizing market-based transactions

Establishing capital controls is one of the worst forms of theft that a government can impose. It traps people’s hard earned savings and their future income within a nation’s borders. This trapped pool of capital allows the government to transfer wealth from the people to their own coffers through excessive taxation or rampant inflation… both of which soon follow.

Reggie Middleton's picture

...and after all of those fancy acronoyms (ECB, EFSF, EU, ESM, ASS, BS, etc.), Italy is essentially just one big Greece. No, I'm not oversimplifying, just look at the bank bailout bailing out the insolvent country circular arguments!

The Latest Adventures Of Alice In Euroland

With the Italian 10 year at a 6.15% and the Spanish 10 year at a 6.60% this morning; pause. My recommendation is to be out of all European sovereign and bank debt but if you have to own some because of your mandate or because you are attached to some Index then it is time to stop, look and listen. The Red Queen (Angela Merkel) and her minions are playing “off with their head” games and the situation is not a joke. The EFSF loans are going to be replaced by ESM money when the fund comes into existence and this means that your position as a senior bond holder will be subordinated to the IMF and/or the ESM. Any country including the existing troubled nations (Greece, Ireland, Portugal, Spain and shortly Cyprus) are going to have their debt replaced by the capital of the ESM so if you own any of these sovereign credits or any of their banks then you are going to be placed in a junior position by fiat. Then we have just seen what happens with “local law” bonds as demonstrated by Greece so that you need to swap out of any “local law” bonds ASAP and only own bonds governed by American, British or Swiss law. This would be for any and all nations on the Continent without exception. When it comes to bond holders versus taxpayers the taxpayer will always win so you must protect yourselves now rather than having your head handed to you later. There is no joy in finding your head on some silver platter I assure you and you must make the changes now and not later. I cannot stress this enough and I hope you are paying attention!

Credit Suisse Explains "The Real Issue", And Why There Is Two Months Tops Until France Is In The Bulls Eye

"It’s all about Spain”, so now we are cutting to the chase. Recapitalization of the banks versus funding the sovereign is of course a semantic issue given the nature of the interplay. But it enables the attempted finesse we describe below. Given the market’s adaptive learning behaviour, we suspect that this finesse might last two [months]. The eventual denouement should be flagged by symptoms of the failure of  the credit of EFSF/ESM and/or France."

Charting The Simple Reason Why Every 'Bailout' In Europe Will Be Faded

The bailout bullishness half-life is shrinking - dramatically - as it appears traders have become more aware of reality (and unreality). As we have noted again and again, the self-referencing, self-aggrandizing, self-pleasuring European government and banking systems are becoming more and more symbiotically linked. As JPM CIO Cembalest notes for Spain, Plan A was the 2010 announcement of government austerity targets. Plan B was the 2011/2012 ECB lending program to Spanish banks - to the point where Spanish banks now own around 50% of Spanish government debt. Neither plan worked and so on to Plan C - recap Spanish banks to cover the expected losses forthcoming. Recapitalization of the banks versus funding the sovereign is of course a semantic issue given the nature of the interplay. As Credit Suisse noted this weekend... "Portugal cannot rescue Greece, Spain cannot rescue Portugal, Italy cannot rescue Spain (as is surely about to become all too abundantly clear), France cannot rescue Italy, but Germany can rescue France.” Or, the credit of the EFSF/ESM, if called upon to provide funds in large size, either calls upon the credit of Germany, or fails; i.e., it probably cannot fund, to the extent needed to save the credit of one (and probably imminently two) countries that had hitherto been considered 'too big so save', without joint and several guarantees."

Daily US Opening News And Market Re-Cap: June 11

European equities in both the futures and the cash markets are making significant gains after a mornings’ trade, with financials, particularly in the periphery, leading the way higher following the weekend reports of the Eurogroup confirming aid for the Spanish banking sector. With data remaining light throughout the day, its likely investors will remain focused on the macro-picture, seeing some relief as the Spanish financials look to be recapitalized. At the open, risk sentiment was clear, with EUR/USD opening in the mid-1.2600’s, and peripheral government bond yield spreads against the German bund significantly tighter. In the past few hours, these positions have unwound somewhat, with EUR/USD breaking comfortably back below 1.2600 and the Spanish 10-yr yield spread moving through unchanged and on a widening trend across the last hour or so against its German counterpart, and the yield failing to break below the 6% mark.

The World Is Flat And Other Tales From Spain

For those of you that keep waiting for some giant change-the-world event; I invite you to re-gear your perspective. Greece has fallen, Portugal has fallen, Ireland has fallen and now Spain has followed the road into Purgatory. These are significant events that are, in fact, changing the world though none has caused Armageddon to date though they may by their aggregate but not singular importance. This is also why Greece is of such key importance; it has nothing to do with staying in or out of the Euro or of the preservation of the European Union as a political entity. That part of the equation is barely relevant. What is of critical importance though is that if they leave the Euro that they will default on some $1.3 trillion in total debt that can be afforded by no one. That is the rub and you may ignore the rest of the Eurospeak that is bandied about from Brussels to Berlin. A default by Greece will bankrupt and cause re-capitalization at the European Central Bank, it will throw the IMF into a tailspin and it will play havoc with Target2 and the German Central Bank. Do not allow yourself to be taken in and mis-directed; this is THE issue and the only issue of real importance.

Key Events In The Coming Week

The past week was dominated by the Eurogroup statement over the weekend that Spain will seek financial support for its banks. According to the statement, Spain intends to make a formal request soon, with financial assistance expected to be around EUR100 bn and to come from the EFSF or ESM. Aid will be channeled through the FROB, and will increase the debt burden of the Spanish sovereign. There will be no macro or fiscal conditionality as in the bailouts of Greece, Ireland and Portugal, but only on bank sector restructuring. That said, there will be monitoring of the deficit and structural reforms as part of this bailout, though no conditionality, and the IMF is also invited to monitor progress under the program. Separately, the week also saw lots of commentary out of the Fed, including from Chairman Bernanke and Vice Chair Yellen. Looking to the week ahead, the key question for us is where to harvest excessive risk premia, bearing in mind that the Greek elections are around the corner.. In terms of policy talk and data, for the former Fed chatter ends on Tuesday when the blackout period begins ahead of the FOMC on June 19/20. For the latter, US retail sales and industrial production will be important to watch as we head into the FOMC next week.

The Spanish Bank Bailout: A Complete Walk Thru From Deutsche Bank

Over the past 24 hours, Zero Hedge covered the various key provisions, and open questions, of the Spanish bank bailout. There is, however, much more when one digs into the details. Below, courtesy of Deutsche Bank's Gilles Moec is a far more nuanced analysis of what just happened, as well as a model looking at the future of the pro forma Spanish debt load with the now-priming ESM debt, which may very well hit 100% quite soon as we predicted earlier. Furthermore, since the following comprehensive walk-thru appeared in the DB literature on Friday, before the formal announcement, it is quite clear that none other than Deutsche Bank, whose "walk-thru" has been adhered to by the Spanish government and Europe to the dot, was instrumental in defining a "rescue" of Spain's banks, which had it contaged, would have impacted the biggest banking edifice in Europe by orders of magnitude: Deutsche Bank itself.

Phoenix Capital Research's picture

 

I believe this is Germany’s final push for EU control. If this fails and Germany ceases to offer additional bailout funds in some form then the EU will collapse (as noted earlier, the ECB, IMF, and US Fed cannot prop the EU up nor will the ESM mega bailout fund work). Spain’s literally on the verge of seeing a bank holiday. Germany is the only one who might have the funds to prop it up. And Germany wants gold. In plain terms, the EU will likely not last through the summer. It’s literally GAME OVER time. Various proposals will crop up (such as Germany’s “cash for Gold” program), but no one (not even Germany) actually has the funds to support the avalanche of banking failures that is coming.