Now, Portugal - new worry for EU

[GoFlyKiteNow]

22 Nov 2010

Greece, Ireland..Portugal..
Spain, Italy ??

Fear of contagion has prompted an IMF/EU rescue for Ireland,
but is it enough to save Portugal from a similar fate?

So must Europe’s leaders, who comfort themselves that Greece is a special case because it cheated, and that Ireland is a special case because it allowed its "Anglo-Saxon" banks to go berserk. They have yet to acknowledge the deeper truth that monetary union has insidiously destabilised much of Europe and trapped a ring of largely innocent countries in depression.

In my experience it is hazardous for English-speaking journalists to write about Portugal without being accused of betraying the Aliança Velha, or pursuing a perfidious Palmerstonian agenda.

It is an article of faith - an Iberian trait - that Portugal is the victim of an orchestrated calumny intended to divert attention from a bankrupt Britain, or America. The rating agencies are deemed agents of Anglo-Saxon hegemony.

Portugal next as EMU's Máquina Infernal keeps ticking
The Portuguese seemed baffled - and pained - that investors should link their country in any way with Greece or Ireland.

Yes, Portugal’s public debt is manageable at 86pc of GDP - although even that figure is in question. Opposition leader Peder Passos Coelho said over the weekend that the real figure is 122pc, accusing the government of "fictitious" accounting. Be that as it, public debt is not the core problem. Private debt is one of the highest in the world at 239pc (Deutsche Bank data), and the events of the last two years have taught us that private excess lands on the taxpayer one way or another in a crisis. A chunk of this is owed to foreigners, and must be rolled over.

 

[GoFlyKiteNow]

"When does denial turn into delusion?" Joan Burton, finance spokeswoman of the opposition Labour Party, said to Lenihan and Coughlan. She accused the government of lying to the public about the inevitability of a bailout.

All across the eurozone, analysts say, debt-burdened governments are living in denial about their long-term ability to keep drumming up fresh cash from bond markets and banks for refinancing debts.

Many say weak growth means Greece remains vulnerable to potential default, or a second rescue, when its current euro110 billion EU-IMF loans come due for repayment in 2013.

Default — telling bondholders they won't get all their money — solves the problem by reducing the amount of debt — but could result in market chaos, hit European banks holding Greek debt and leave Athens cut off from borrowing for an unknown period.

European officials are discussing procedures to let a member of the eurozone default in a way that minimizes financial turmoil — a complex question that may not be solved for months or years.

Meanwhile, Portugal is reduced to hoping interest rates on its bonds will fall once the EU and IMF cap concerns about Ireland. Spain is struggling with less debt but a stalled economy with 19.9 percent unemployment.

The immediate focus is on Dublin because its banks have broken the patience of their major recent source for funding, the European Central Bank. The banks have already required a euro45 billion ($62 billion) government bailout program that has pushed the Irish deficit this year to an unprecedented 32 percent of GDP.

In recent months loans from the Frankfurt bank to Irish banks have surged, and recently reached an apparent breaking point whereby the Irish banks could no longer provide sufficient collateral. The Irish Central Bank, controversially, has been filling the cash void by providing its own ECB-backed loans to the Dublin banks that have taken total ECB exposure in Ireland above euro130 billion, a quarter of its eurozone loan book.

Irish Central Bank governor Patrick Honohan, forecast that Ireland would negotiate a loan facility with the EU and IMF worth "tens of billions." He said the funds would be used to strengthen the financial foundation of Irish banking.

Three of Ireland's six locally owned banks have been nationalized since 2009, while the government is the biggest shareholder in two others.