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Portugal Bailout = Spanish Banking Bailout And Maybe An Ecb Bailout...

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http://www.bbc.co.uk/blogs/thereporters/robertpeston/2011/04/who_pays_for_portugals_mess.html

.......

That said, the UK cannot avoid providing any succour to Portugal. As a result of our commitments to the International Monetary Fund and the European Union's European Stability Mechanism (ESM) Britain could find itself making an implicit contribution to a Portuguese bailout of as much as 5bn euros - or as little as 1bn euros (depending on whether Portugal taps the ESM or just the European Financial Stability Facility, to which the UK does not contribute).

The risks, predictably, are greater for Spanish, German and French banks, with $109bn, $49bn and $46bn of exposure to Portugal respectively.

But even in their cases, direct exposure to the financially challenged Portuguese government is limited: just $33bn of loans for all banks from the three countries together.

And loans to Portugal's public sector by all euro area banks (excluding loans by Portuguese banks) are just $42bn in total.

So if Portugal were eventually to default or to write down the value of its sovereign debt, the direct impact on the eurozone banking system would be embarrassing rather than devastating.

This however is to ignore two other highly relevant concerns.

First is that if Portugal restructures its debts, so as to reduce what it owes, that would probably only happen if Ireland and Greece engaged in similar writedowns.

And cross-border exposure of eurozone banks to public-sector Irish and Greek debt is $80bn (of which $65bn is Greek).

A writedown or haircut of Greek, Irish and Portuguese debt could cause difficulties for some eurozone banks.

And if such writedowns triggered losses on bank-to-bank lending - which it probably would - then the magnitude of potential bank losses starts to look troubling.

In this context, note that the exposure of just Germany's banks to banks in Greece, Ireland and Portugal is $80bn.

Or to put it another way, Germany has a very powerful interest in persuading Greece, Ireland and Portugal not to default - which, some would say, isn't necessarily captured in bailout terms for Ireland and Greece that are seen inside those countries as carrying punitive interest rates.

...

Or to put it another way, Portugal's government was only able to borrow what it needed by selling bonds because Portuguese banks were prepared to buy these bonds.

Now Portugal's banks were only able to lend to the government because they in turn massively increased what they borrowed from the European Central Bank and the Central Bank of Portugal.

According to statistics published by the Central Bank of Portugal, central bank lending to Portugal's banks increased from 14.4bn euros at the end of 2008 to 49bn euros two years later, a rise of 36bn euros.

And much of that central bank lending is secured via repo agreements on Portuguese government bonds (or loans to the Portuguese government) held by Portugal's banks.

That means the ECB is massively exposed to the health of the Portuguese state and to the health of Portuguese banks.

Excellent news here, this appears to be the first part of a bailout for the Spanish govt and banks who are clearly in trouble

Even better this also appears to be a bailout for the ECB that appears to have got inself into a bit of a muddle and by proxy has been monetising Portuguese debt...

Still at least some more printy printy will fix it all.

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When the proverbial hits the air con, ze Jermans will print.

Remember Weimar.

And I have a suspicion that wasn't such a bad idea because it helped the reduce their war reparations.

(Evidence based stuff to the contrary will be most welcome.)

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When the proverbial hits the air con, ze Jermans will print.

Remember Weimar.

And I have a suspicion that wasn't such a bad idea because it helped the reduce their war reparations.

(Evidence based stuff to the contrary will be most welcome.)

They probably have no option, but the politics will be 'orrible.

Anyone have a good link analysing why Axel Weber fecked off?

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http://uk.finance.yahoo.com/news/Spain-vows-next-Portugal-reuters_molt-1902800711.html;_ylt=AkE73rPxKnuOuBIpMC27LgrSr7FG;_ylu=X3oDMTE4dW9ndjkzBHBvcwM0BHNlYwN5ZmlUb3BTdG9yaWVzBHNsawNzcGFpbnZvd3N3b24-?x=0

Elisabeth O'Leary, 7:38, Friday 8 April 2011
MADRID (
Reuters
) -
Spain vowed on Thursday it would not follow ailing neighbour Portugal
in seeking a European bailout, and a successful Spanish bond auction suggested markets do not immediately fear contagion.
The fall of another euro zone domino following Greece and Ireland (Berlin: IIK.BE - news) focussed attention on Madrid, testing the efforts that its government, and European authorities, have poured into erecting a firewall to buttress its public finances.
"(The risk of contagion) is absolutely ruled out ..

Denial phase is moving into the final phase before the bailout: assurances that there is no risk.

When will Spain move into acceptance phase? This side of the summer or early Autumn?

THe third bailout has boosted the Euro though and this is NOT good for them. US policy is still Euro 1.60 IMO. Best way to kill off competition is to price 'em out (Tesco).

Edited by Realistbear

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http://www.bbc.co.uk/news/business-12995377

European Central Bank (ECB) President Jean-Claude Trichet has said that it encouraged crisis-hit Portuguese authorities to seek financial aid.

He was speaking after the ECB raised rates to 1.25%, which may add to the problems of debt-ridden countries.

Portugal's troubles are also expected to be discussed at a two-day meeting of EU finance ministers in Budapest.

Portugal's caretaker Prime Minister Jose Socrates said on Wednesday he would ask for financial assistance.

"We have encouraged the Portuguese authorities to ask for support and that was commanded by the situation after what has happened previously in Portugal," said ECB President Jean-Claude Trichet.

I think the ECB had got a little peeved that the Portuguese where just monetising their deficit spending by the back door.

I wonder if the ECB had given them a quite little word that their collateral would no longer be accepted?

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When the proverbial hits the air con, ze Jermans will print.

Remember Weimar.

And I have a suspicion that wasn't such a bad idea because it helped the reduce their war reparations.

(Evidence based stuff to the contrary will be most welcome.)

No, it was a major advantage for Germany in the run up to WWII..

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I think the ECB had got a little peeved that the Portuguese where just monetising their deficit spending by the back door.

I wonder if the ECB had given them a quite little word that their collateral would no longer be accepted?

You are probably right, or it seems Portugal would have just continued the back door monetization.

Realistically I don't think there is anyway out of this except monetizing the differences between what these nations can pay and the liabilities they have taken on.

Luckily the Euro has near endless room to print. Like even printing 10 trillion Euros over the next 5 years I do not think would break the Euro. It would just lead to slightly higher inflation.

Between Ireland, Greece and Portugal they've probably printed a good 750 billion Euros so far.

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Big action on FOREX with the Euro breaking 1.44 to the $ and Sterling back down below 1.137.

Bad news is mmmm-good! Debt is good. Bailouts are a sign of strength.

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http://www.telegraph.co.uk/finance/economics/gilts/8436402/Portugal-rescue-marks-eurozone-formal-commitment-to-two-speed-economy.html

European Commission sources said the package would be negotiated "swiftly" despite Lisbon's caretaker government lacking a political mandate ahead of country's June 5 elections.

"It will be done quickly, very quickly. Portugal really needs the money soon to service debt. There is no question of waiting until after elections," said one source.

Portugal to be shafted just like the Irish then.

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http://www.bloomberg.com/news/2011-04-07/european-debt-crisis-morphs-into-new-phase-commentary-by-mohamed-el-erian.html

..

.../
On the surface, Portugal’s bailout may look like a replay of Greece and Ireland. But don’t be fooled. Seemingly familiar developments in the next few weeks will likely be followed by a
paradigm shift,
especially if European banks continue to raise capital.
This will accelerate the move from an unsustainable liquidity approach to a more durable solvency solution for the continent’s debt crisis.
(Mohamed A. El-Erian is chief executive officer and co- chief investment officer at Pacific Investment Management Co. The opinions expressed are his own.)

Silly buggers we all are..cuh.....cuh. Should have seen it ourselves. There isn't a problem with all these bailouts and Spain's massive unemployment--its just a PARADIGM SHIFT.

Its not really debt we are looking at but something that can be repackaged as a credit (restructered). Its a new paradigm , no more boom and bust........................

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http://www.guardian.co.uk/world/2011/apr/07/portugal-hidden-debts-bailout

Portugal's bailout requirement is 20% higher than previously thought, with hidden debt in state companies and private-public partnerships possibly to blame, according to sources in Lisbon.

Officials plan to ask for a €90bn (£79bn) bailout, making it an even larger aid package than the €85bn granted to Ireland, according to respected business daily Diario Económico. Previous reports had suggested Portugal required around €75bn.

The extra cash is needed, it is said, to cover government debt, state companies that are having trouble paying employees and the possible recapitalisation of Portuguese banks after future stress tests.

The request would signal deeper debt problems buried inside the Portuguese administration, with economist Nuno Garoupa pointing to both troubled public companies and a lack of reporting on the state of public-private partnerships covering hospitals and roads which will not be revealed until 2013.

Many economists believe that these hidden elements drive the country's real debt up towards 120% of GDP, rather than the 85% figure given by the government. "This is an open secret," said economist João César das Neves of Lisbon's Catholic University. "Europe knows it already."

So Portugals gone down the PFI route as well then?

Excellent, this bailout looks like it's going to get bigger. Even if they plug the whole this time in 2013 it would appear they'll need even more funding?

Still all debt is good.

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So Portugals gone down the PFI route as well then?

Excellent, this bailout looks like it's going to get bigger. Even if they plug the whole this time in 2013 it would appear they'll need even more funding?

Still all debt is good.

PFI is one of the great British Export stories for the past decade. Never in human history has a method of financing being found that greases so many palms whilst achieving so little at such (hidden) cost..

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So the UK has to provide £billions of bailout funds for the bankrupt countries, now including Portugal, and as a Portuguese politician pointed out yesterday the UK has no high ground to talk about debt and deficit as in that connection the UK's position isn't that different to Portugal's.

Thank goodness they all know what they're doing and thank goodness for Mervyn's groundhog days.

Edited by billybong

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So the UK has to provide £billions of bailout funds for the bankrupt countries, now including Portugal, and as a Portuguese politician pointed out yesterday the UK has no high ground to talk about debt and deficit as in that connection the UK's position isn't that different to Portugal's.

Except that we can print.

I think that the BoE should issue CDSes against the pound (i.e. that pay out in the event of default). Looks like a nice little earner..

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Except that we can print.

Indeed that's about all. The Portuguese politician didn't specifically mention that (he was just talking about the overall debt/deficit positions and pointing out that the UK can't lecture Portugal on that) but the ability to print doesn't signify a healthy economy if that's all they're relying on - quite the contrary. It just means it takes a bit longer to get to where Portugal already is.

Edited by billybong

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...reminds me of the game of musical chairs, the chairs keep being pulled away, when the music stops who will be the last one sitting standing? ;)

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Indeed that's about all. The Portuguese politician didn't specifically mention that (he was just talking about the overall debt/deficit positions and pointing out that the UK can't lecture Portugal on that) but the ability to print doesn't signify a healthy economy if that's all they're relying on - quite the contrary. It just means it takes a bit longer to get to where Portugal already is.

I was more hoping that we'd see a lower pound and bondholders getting hit through inflation. Still a default (still austerity in many ways) but some of the pain goes to the lenders.

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The UK is in a similar financial position to the likes of Portugal and the UK's whole scheme could go very badly wrong for the UK on timing - and on past performance it's unlikely they'll get it right as they never have. For so long it's always debt and inflation as a solve everything for the UK. It's likely that the US will come out of their recession maybe in a few years time along with the eu. By then Asia might have had their downturn and be starting off again.

In the meantime the UK will still be piddling about trying to get more and more into public and private debt and hoping it'll all go away via inflation as well as all the other typically madcap policies - all the time most of the UK being left behind (even now some cities in the UK look more like the grim dilapidated ghost towns of western movies than the cities of a so called "developed" nation - and that's flattering some of them) and the only ones seeming to benefit being the bankers and politicians and their ilk.

Edited by billybong

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The UK is in a similar financial position to the likes of Portugal and the UK's whole scheme could go very badly wrong for the UK on timing - and on past performance it's unlikely they'll get it right as they never have. For so long it's always debt and inflation as a solve everything for the UK. It's likely that the US will come out of their recession maybe in a few years time along with the eu. By then Asia might have had their downturn and be starting off again.

In the meantime the UK will still be piddling about trying to get more and more into public and private debt and hoping it'll all go away via inflation as well as all the other typically madcap policies - all the time most of the UK being left behind (even now some cities in the UK look more like the grim dilapidated ghost towns of western movies than the cities of a so called "developed" nation - and that's flattering some of them) and the only ones seeming to benefit being the bankers and politicians and their ilk.

Sounds about right.

Since I am neither banker nor politician, I don't know what to do.

Perhaps there is an ilk training course I could go on.

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  • 312 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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