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Portugal Edges Towards 'inevitable' Bailout From Eu Partners

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http://www.guardian.co.uk/business/2011/mar/22/portugal-edges-towards-eu-imf-bailout

• Government set to lose key vote on austerity budget

• Ireland looks likely to default on crucial repayment

Ireland's borrowing costs rose dramatically today in rumour-driven markets as speculation mounted that Portugal was also edging towards a bailout from its European partners.

Troubled Allied Irish Banks was forced to officially denounce widespread rumours that it was set to miss a crucial repayment on one of its bonds, due on Wednesday, after the difference between Ireland's and Germany's borrowing costs exploded to record levels on talk that a default was imminent.

While investors were concerned about the plight of Ireland, Portugal was also being battered ahead of a key vote on an austerity budget on Wednesday, which the prime minister José Sócrates is expected to lose. Sócrates is expected to call a snap general election if the main opposition Social Democrats carry through their threat to oppose the budget.

The move could force the country further down the route of a bailout – first trodden by Greece last spring and then by Ireland at the end of last year.

Portugal has been resisting asking for a rescue but economists and market experts believe its battle could be ending – even as the country raises taxes and embarks on the biggest spending cuts for three decades.

It's not that Portugal needs a bailout the truth is the European banks need a bailout to prevent them from collapsing if Portugal defaults.

But at least we can keep pretending the bailout is to help out the Portuguese govt and people.

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Wow, 2011 is turning out to be very interesting. Credit crunch phase 2 anyone?

Spain next and at that point it's effectively over.

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The Euro. It would be toast.

Yep, either spain gets to walk away - and then ireland etc will simply follow suit or they print it up, nuking all the remaining value left.

I'm saying they will go for printing, obviously.

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Seems to me that the Portuguese may not accept the terms that will come with any bailout. The mood seems defiant there at the moment.

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The Euro. It would be toast.

The euro will be toast when default occurs in a country that can no longer pretend it is solvent - probably forced by riots on the streets. Once this happens the problem can't be contained (because the defaulting country will stick 2 fingers up to the euro whereas a country receiving a bailout is simply bending over and taking it up a*ss). The bailouts are just there to kick the can right down the road. I don't reckon this is that easy to predict, something else might happen to cause a collapse. And that might be Ireland throwing in the towel. Who knows.

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The Euro. It would be toast.

Defaults by the Irish, Portuguese, Greek etc governments would be very good for the euro (in the long run, perhaps not immediately if markets panicked). It would show that the ECB was not willing to print forever to bail out governments who can't balance a budget. The less your central bank prints, the stronger your currency.

Countries used to default pretty regularly when everybody was on the gold standard. Now everybody in the eurozone is on the euro standard as national governments don't have their own printing presses any more.

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Seems to me that the Portuguese may not accept the terms that will come with any bailout. The mood seems defiant there at the moment.

Portugal will accept whatever the big boys want. It's too small to say no. Things can only change when bigger fish like Spain or Italy get in trouble.

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Defaults by the Irish, Portuguese, Greek etc governments would be very good for the euro (in the long run, perhaps not immediately if markets panicked). It would show that the ECB was not willing to print forever to bail out governments who can't balance a budget. The less your central bank prints, the stronger your currency.

Countries used to default pretty regularly when everybody was on the gold standard. Now everybody in the eurozone is on the euro standard as national governments don't have their own printing presses any more.

Problem is the Debt is mainly held by European banks ( French, German, British, etc). Once the debt is rendered worthless or a big haircut takes place They will need additional capital or go bust.

If this was not the case Greece, Ireland would have restructured already.

No good having a credible currency with a bankrupt banking system, if the sovereigns take on the debt would then also have a serious debt problem. Only way out would probably be printing. No easy solution, especially one that does not violate the German constitution.

The crisis will probably drag on for years before we reach "endgame"

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Defaults by the Irish, Portuguese, Greek etc governments would be very good for the euro (in the long run, perhaps not immediately if markets panicked). It would show that the ECB was not willing to print forever to bail out governments who can't balance a budget. The less your central bank prints, the stronger your currency.

Countries used to default pretty regularly when everybody was on the gold standard. Now everybody in the eurozone is on the euro standard as national governments don't have their own printing presses any more.

There is little "or else" for people to get scared of.

A non bailout would focus minds...as a BUST is supposed to do. A Bail out in cash terms does nothing to the underlying problem..sure the offenders get away with it, but the economy is still in the poo, as inflation will create MORE debt required for future payments.

Just checking with the FSA about complaints against an insurance company.

You cant "have a go" at anybody...the whole thing is wrapped up in nice letters to people who will investigate on your behalf, and have long times in which to ignore you. Staff members who help you are disciplined for "conflict of interest" and "bringing the industry into disrepute".

talk about closing ranks....maybe a few "or elses" would be appropriate.

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Spain next and at that point it's effectively over.

I don't think anyone seriously equates Portugal with Spain. Spain has purt in the measures that are cutting its deficit, and its economy is now growing, albeit at a modest rate. The improving signs are reflected in market rates - Portugal has to pay 7.58% on its debt (probably more now) while Spain's has eased back to 5.21%. A better sign is that Russia has taken Spain off its invesment blacklist, imposed back when Ireland had its crisis in December.

For further evidence that Spain's exports are succeeding despite the tough economic situation of the last two years, you could read the following:

FT article Inditex

Strong results from Inditex, the Spanish retailer that owns the Zara brand, boosted retailers across the continent.

Catalan Plasma plant expands

Vibrant Spanish exports

The result was a 30pc rise in labour costs compared to Germany, though this oft-cited number is misleading: Spain joined EMU at a greatly undervalued rate – unlike Portugal, which locked in too high.

But the Devil is in the details. A study by Natacha Valla at Goldman Sachs found that Spain had the eurozone’s highest skew towards "price inelastic" exports with a score of 60, compared to 59 for Germany, 55 for France, 53 for Italy, 50 for Greece, and 48 for Portugal. This is a complex stuff – Balassa theory to anoraks – but it broadly means that Spain’s exports are high enough up the technology ladder to let quality trump price.

The one fly in the ointment for Spain is its high unemployment rate. But it looks like being a good year for tourism (able to soak up some of those who were flying to Mid East countries) and agriculture due to high world food prices. Added to which Germany has made a point of seeking to hire Spanish young workers.

I wouldn't worry about Spain if I were you.

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http://www.telegraph.co.uk/news/worldnews/europe/portugal/8402223/Portugal-facing-61-billion-bail-out-as-government-loses-confidence-vote.html

The prospect of a new Portugal crisis and a potential bail-out worth up to £61 billion will overshadow Thursday's EU summit, a meeting aimed at repairing the damage done to the euro by Irish and Greek bailouts last year.

Britain, just one day after the government's "budget for growth", could be faced with liabilities of between £821 million and £3.7 billion for a euro bail-out of Portugal, according to new research.

Portuguese MPs on Wednesday night threw out a sweeping austerity package, drafted by Jose Socrates, the Prime Minister, which had been crafted with EU support to tackle the country's growing debt crisis.

Only £61bn for a bailout, haven't we got banker bonuses to pay? Something wrong with the figure surely?

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I don't think anyone seriously equates Portugal with Spain. Spain has purt in the measures that are cutting its deficit, and its economy is now growing, albeit at a modest rate. The improving signs are reflected in market rates - Portugal has to pay 7.58% on its debt (probably more now) while Spain's has eased back to 5.21%. A better sign is that Russia has taken Spain off its invesment blacklist, imposed back when Ireland had its crisis in December.

For further evidence that Spain's exports are succeeding despite the tough economic situation of the last two years, you could read the following:

FT article Inditex

Catalan Plasma plant expands

Vibrant Spanish exports

The one fly in the ointment for Spain is its high unemployment rate. But it looks like being a good year for tourism (able to soak up some of those who were flying to Mid East countries) and agriculture due to high world food prices. Added to which Germany has made a point of seeking to hire Spanish young workers.

I wouldn't worry about Spain if I were you.

yep, piigs bailed up, ready to fly and carry on as normal.

genius these bailouts...

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Very interesting piece from Peter Oborne in the Telegraph...

Executive summary: the resignation of Portugal's PM marks the start of the endgame for the euro, the final result of which is likely to be a European recession that dwarfs the 2007 crisis. It was the last paragraph that caught my eye (my emphasis):

More importantly, however, we can take steps to reduce our national exposure to European sovereign debt, much of which is likely to become valueless. George Osborne controls two banks, RBS and Lloyds TSB, a legacy of the 2007 crisis. He needs to prune their balance sheets. Individuals, too, can play their part. Depositors should be chary of placing more than £50,000, the maximum insured by the state, on deposit with Santander (which owns what used to be the Abbey National and Bradford & Bingley). Santander is Spain’s best-run bank by some distance. But we are entering terrifying times, and there is no need at all to take unnecessary risks.

I'm a bit surprised that the Telegraph's lawyers let that one through. It's certainly the first time I can think of that the op-ed columns of a prominent national newspaper have directly accused one, named bank of being an unsafe place for retail deposits. Presumably he's got figures and data galore should Santander be contemplating a libel action.

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From today's TIL:

http://www.thisislon...for-portugal.do

Anger was growing today at the prospect of British families being stung with a bill of up to £6 billion to bail out debt-laden Portugal.

One angry Tory MP questioned whether George Osborne and David Cameron fought hard enough to block an EU deal that means British taxpayers cannot escape a share of any bailout.

Lisbon is still insisting that it does not need a rescue package despite losing the confidence of the financial markets this week.

The country's ruinous finances dominated an EU summit in Brussels today, despite an agreement among leaders not to discuss it openly in case that led to speculation and fuelled the crisis.

British taxpayers are liable under a deal signed by Alistair Darling in the dying hours of the Labour government in May last year.

Edited by pl1

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Very interesting piece from Peter Oborne in the Telegraph...

I'm a bit surprised that the Telegraph's lawyers let that one through. It's certainly the first time I can think of that the op-ed columns of a prominent national newspaper have directly accused one, named bank of being an unsafe place for retail deposits. Presumably he's got figures and data galore should Santander be contemplating a libel action.

I doubt the bank would risk bringing a libel case, they could run the risk of being exposed fatally, they would have to appear in court and be cross examined I bet no banker would run that risk.

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Just as with Ireland, very little of this bailout money is going to stay in Portugal for more than a day or two. Most of it is to repay those who lent money to the Portuguese government, many of whom are northern European banks and institutional investors. So Westminster wires the money to Lisbon, who wire it straight to the City of London where it is paid out in bonuses. Nice work if you can get it.

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Just as with Ireland, very little of this bailout money is going to stay in Portugal for more than a day or two. Most of it is to repay those who lent money to the Portuguese government, many of whom are northern European banks and institutional investors. So Westminster wires the money to Lisbon, who wire it straight to the City of London where it is paid out in bonuses. Nice work if you can get it.

There's a perverse form of entertainment to be had watching the self proclaimed guardians of the peoples of europe trying to work out just how deeply they can shaft those same populations in order to ensure a small bunch of rich guys don't lose out on their gambling debts.

The grand european project has been reduced to a social welfare scheme for the rich.

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I'm a bit surprised that the Telegraph's lawyers let that one through. It's certainly the first time I can think of that the op-ed columns of a prominent national newspaper have directly accused one, named bank of being an unsafe place for retail deposits. Presumably he's got figures and data galore should Santander be contemplating a libel action.

He's also missed the increase in deposit protection. The Mail will probably have to cough up over this.

Edited by thecrashingisles

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  • 311 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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