Mr. P: The face of the eurozone's future?
By IRWIN STELZER [The Wall Street Journal] – It is one year since the powers-that-be in the euro zone crafted a plan to get Greece over a liquidity hump and onto the sunlit meadows of fiscal sustainability. Since then, the fiscal situation in Greece has deteriorated, the economy has gone into recession, and the team sent to check on Greece’s progress today will undoubtedly struggle to find the words to translate the reality of the country’s failure to meet its deficit-reduction targets into euro-zone-speak for “success.” Buoyed by that success, the euro-zone team is administering similar medicine to Portugal. The patient is unlikely to recover…
Portugal’s unsustainably high debt is to be cured by, er, lending it more money. The new €78 billion loan will raise Portugal’s public debt to 120% of its GDP. In the manner of the late, great financier Charles Ponzi, Portugal is borrowing money with which to pay off creditors. Not to worry, once it gets past this troublesome liquidity crisis, it will be able to borrow in international markets to repay the loans it is receiving from the IMF and its European partners, loans being used to repay other loans, with money it borrows from private-sector investors. If you don’t get it, you get it.
Continued at The Wall Street Journal |
Greece, Portugal miss deficit targets.
By STRATFOR [Business Insider] – EU statistics agency Eurostat revealed in figures released April 27 that Greece and Portugal overshot their budget deficit targets in 2010. According to the agency, Athens’ budget deficit for 2010 was adjusted upward from 9.6 percent of gross domestic product (GDP) to 10.5 percent, while Lisbon’s was revised from 7.3 percent to 9.1 percent of GDP. The revision does not necessarily come as a surprise; both Greece and Portugal have considerable sovereign fiscal deficits they are attempting to address with severe austerity measures. As these measures are implemented, however, GDP declines, causing a rise in the deficit as a proportion of overall GDP. The revisions also mean that meeting the 2011 targets will be difficult, especially as both Greece and Portugal are expected to have a decline in GDP this year.
The release of these figures tracks the ongoing concern in Europe that Greece will have to restructure its debt — essentially default on some part of its commitments to investors in their current form — this year.
Continued at Business Insider |
In Spain, unemployment hits one in five workers.
By GILIAN CARR [Risk.net] – Despite assurances from the International Monetary Fund that saw Spain seemingly decouple from other PIGS countries, Portugal, Ireland and Greece, investors are still treading carefully when it comes to Spanish senior debt…
Spain is a big borrower overseas, with net foreign liabilities approaching 100% of GDP, a factor that could cause some market volatility. Combined with the high unemployment rate in Spain – which hit 20.7% at the end of March – he says economic recovery is by no means secure, which could cause more harm to the banking sector.
“We still don’t see value in Spanish financial debt, as moves to recapitalise the smaller banks and cajas have been too timid, and there is a lot of ‘extend and pretend’ going on in the real estate space. A larger recapitalisation will likely be needed,” says Howard Cunningham, a portfolio manager at Newton Investment Management, a subsidiary of BNY Mellon Asset Management.
Mondelears sees the Spanish banking sector’s recent restructuring as being similar to what Italian banks have done in an effort to reach more conservative core tier 1 capital levels. But he argues the Spanish banking sector faces specific domestic challenges.
“We’ve seen a lot of high level recapitalisation by a couple of banks in Italy, which is dealing with this process more efficiently than, say, the Spanish. It’s less complex [in Italy] because Spain has the big caja sector with a lot of smaller cajas that are trying to restructure or merge into bigger entities,” he says.
