The perilous condition of Portugal's banks

2 Observations:

1. Portugal (and ROI) clearly had nearly as many problems as Greece, so why did the ECB keep lending it money for the last 6 months?
2. Fiscal tightening is essential to maintain a healthy credit market and therefore growth. The Labour Party's mantra of cutting=killing growth clearly blown out of the water. If credit markets won't lend you money (like Portugal) because they aren't convinced you can repay, then whatever growth you had will be a distant memory when the cost of sovereign debt hits 8%.

What were the authorities doing allowing this to build up in the context of Ireland and Greece. Seems like a bit of conspiracy between the banks and the government but surely the ECB must have turned a knowing blind eye - What!
With authorities like this who needs speculators.

You would think that someone would have learned by now. The problem here is debt and you will never solve it by taking on more debt. The way in which Governments and Banks (not limited to Portugal) seem think that some fancy debt-juggling will lead to it all going away would be laughable if it were not so dangerous.

Debts only go away if they are (a) paid off - which will require real investment in real economic growth based on something other than borrowing or (b) written off - which means the barber (or the headsman) for lenders.

It looking less and less likely that anyone is ever going to get to grips with this crisis - and sooner or later the borrower of last resort will go bankrupt and the lenders of last resort will be left with nothing.

Then we'll be really in it. It just so bl**dy stupid.

Let's face it: the Euro is caput and the EU is corrupt beyond redemption.

Greece: de facto insolvent, all the more so after the recent debt and deficit revisions. As long as Greece remains sufficiently compliant with the conditionality of its EU/IMF program, sovereign debt restructuring is likely to be postponed at least until mid-2013, when its EU/IMF programme expires. At that point, it likely will be transferred to the EFSF or its successor. Whether its debt will be restructured at that stage, including haircuts, will depend on factors beyond the sustainability of its debt.
Ireland:Accessing external sources of funds will not mark the end of Ireland’s troubles. The reason is that the consolidated Irish sovereign and Irish domestic financial system is de facto insolvent. The Irish sovereign cannot from its own resources ‘bail out’ the banks and make its own creditors whole. In addition, a fully-fledged bailout (permanent fiscal transfer) from EA partners or the ECB is most unlikely. Therefore, either the unsecured non-guaranteed creditors of the banks, and/or the creditors of the sovereign may eventually have to accept a restructuring with an NPV haircut, even if it is not a condition for accessing the EFSF or the EFSM at present.
Portugal: Insolvent, likely that it will need to access the EFSF soon.
Spain:For now, the markets have put Spain in Italy’s sovereign risk class when it should be closer to Portugal and Ireland once its banking sector problems are recognised. Its been argued in my posts before that the EFSF should be much larger (€2trn). Should Spain need assistance, it will stretch the resources of the EFSF, perhaps beyond its current limits. There may be some room to expand the size of the EFSF. But once Spain needs assistance, the support of the ECB will be critical (by purchasing Spanish sovereign debt through its Securities Markets Program — SMP — and funding Spanish banks using Spanish sovereign debt or sovereign-guaranteed financial instruments as collateral or by making loans to or purchasing the debt of the EFSF, legally a limited liability company that could even be made an eligible counterparty of the Eurosystem for this purpose). In the longer term, there may be a need for large-scale restructuring of the debt of the Spanish banking sector and possibly the sovereign.
Italy and Belgium:At longer horizons, high debt levels and political instability in Italy and Belgium may yet give rise to fundamentally warranted sovereign debt crises, while self-justifying crises are possible even in the near term, despite roughly balanced structural primary budgets.

Greece, Ireland, Spain and Portugal (GISP) are small in GDP terms relative to Germany and France. But their banking systems grew to be very large (e.g., a 20% haircut on French bank exposure to GISP countries would wipe out French bank equity). Irish Finance Minister Lehinan intimated that Ireland asked to be able to apply haircuts to senior bank debt, and was told by the EU that it would make no money available if there were any haircuts, due to fears of contagion. What does that tell you about the risk of small countries, or the European banking system?

No wonder one of the first things this government did was to make all employers start pensions for all their employees. The bigger that pot becomes the better it will be when raided. Just like the French did a couple of days ago.
How much more daylight robbery can the man in the street take? When will the rich pay their share?

I think it's pretty certain that the Portuguese situation is going to end in a bailout; and the same with Spain, and why not Italy and Belgium? There's no reason for this not ending either.

Most of Europe does not export more than it imports, and the nature of the global economy means that it is unlikely to be in that position for...decades. The Coalition's plans for 40% of the economy being exports is sheer fantasy land, and it's amazing it has not come under serious critical comment.

Lacking that ability to get out of our debt by effectively dumping it on another country, then we have to pay it off. Let's take Portugal: how can Portugal ever pay off it's debt? It cannot. It will have to cut if it wants loans at a reasonable rate; but by cutting, its tax revenue decreases; people default on loans; and the loan rate goes up as the economy shrinks and bondholders fear getting their money back; so they cut again. Can they use inflation to shrink their debt? No, because the ECB won't let them. They, Ireland, Spain, Greece and probably Italy and Belgium are all caught in a terrible debt servitude. (We're actually all in debt servitude, but it's the conditions of the servitude that matter!)

However, there is a reason why inflation, as many commentators think, will NOT be allowed to decrease the real debt; the reason is that bondholders don't want it to, and if the last few weeks have taught us anything it is that when the bondholders flex their muscles, governments come running. There are hundreds of billions tied-up in bonds: if they don't want inflation then they are not going to wear it, and given that they can push-up interest rates without government help, then what can governments do? Governments would literally have to tear-up the International Financial system and the global economy just to get some control back. (The Europhiles would do better to protest against the effects of Global Finance on sovreignty than the power exerted by Brussels.)

In any market the investor would have to take the hit. Yet the Irish government especially, is prepared to see the Irish people see a huge decline in living standards and future prosperity to make sure that bondholders do not lose any money. Why do people with little or a very small role in this whole debacle have to finance returns for banks/investors for years to come?

Look out for more pension pot raiding!!

And so the dominoes keep falling, each one bigger than the last,the unsustainable money go round, whilst i should be happy we arent in the Euro our fate is so heavily linked ,i just wonder where and when we topple.

The timescale from "we have no problems like xxxx country " to " Give us more cash or we fail" announcements appears to be shortening each time.

Will Greece start selling off those old buildings? Parthenon anyone?

this is nothing but media-hype and speculation.

The macroeconomic indicators of this nation are not that different from those of some of the big ones (look at the UK, or France for instance, with their high deficit and public debts) and it's really difficult to understand why is it that the markets prefer to attack the smallest. If I am not mistaken the UK has a public deficit of 12%, Portugal's is going to be 7% this year

Unless we really just accept and face reality: because it's much easier for them. The word of an English-speaking news reporter or Angela Merkel is worth 50,000 words coming out of Portugal's PM mouth.

So much for market self-regulation if that means people getting poorer and countries going bankrupt due to speculation.

let me remind you of the rating's agencies recent downgrade of Portugal and SPain due to its macroeconomic outlook... well, why not the UK then?

Or France? (they have high public debt - as high as Portugal's and hig deficits as well).

Why does the UK get a prim AAA rating? There's a twisted logic in all this, and it could reveal a clear conflict of interests.

There are many questions that seem to have little to no answer in reasonable terms. But one fact is certain, the markets are being wreckless with Portugal, it is all mostly speculation and making profit, and I don't really know where this will lead. It is indeed a sad world we live in .

Thank goodness the Portuguese banks are lending from the ECB and buying the Portuguese debt. At least it won't fall into the hands of dodgy "hedge funds" and "vulture funds" that wrecked Irelands, when they heard of the so-called "haircut". There you go, my two euro-cents.

I think the British media should leave Portugal alone for a while. We don't need articles publically either offending us (calling us PIIGS - and don't tell me it's just an acronym as all nicknames have a reason), or blowing things out of proportion, misquoting our finance minister a billion times, repeating the same news article in 1000 different newspapers, repeating the same news article on one day and then publish it again 10 days later (It happened in the FT).

I would almost be forced to say there is some kind of obsession with this. But just worry about your own problems, leave Portugal to its fate. It doesn't really matter anyway such a small country will have little effect in your lives.

Thanks for listening. (or reading)

And yet Portugal and Spain expect to be able to find 3bn+ to fund a World Cup???

Total collapse of the Eurozone or mass printing of Euro's......?

£39,700,000,000,000 of borrowings - in 6 months!!!

No way is that manageable in the short-term.

This is just one open-goal for the speculators. Will governments/regulators never learn?

It's probably too late anyway!

Banks lending to governments hey? Put's a whole new angle on the "too big to fail" discussion.

All of these problems are cause by bankers - they get free money (quantitative easing) from the USA and the UK they want it from the EU too.

The crooks in pin stripe suits MUST be resisted!

It puzzles me why the ECB has promoted a strong Euro for so long when a week Euro would have been more beneficial.

Ireland, Greece and Portugal are going to have to get used to lower living standards because they should never have risen so far in the first place. If you or I go out and buy a Bentley using a loan, stay in Londons best hotels and dine at the Ivy then we are living a dream well beyond what we (or certainly I ) can afford. That is what I have observed in Greece and Ireland - living the high life on credit. An Irish friend described it nicely: 'It was a great party while it lasted but now we have to pay the bill and we have a hangover'! That sums it up better than any economic jargon.

#1 as usual people here misprepresent what the Labour Party have said. What they proposed was cuts, but neither as early or as deep, because of the risk of slowing growth. The risk was that more people lost their jobs, thus increasing government expenditure while tax revenues declined - so the deficit was actually being pulled wider as a result.

this is my take on the so-called european sovereign debt crisis: Greek boomed because it WAS insolvent. They lied for years about their public finance. This started two things at the same time:

a) It started scaring away traditional bondholders. Who started to sell in the secondary markets.

b) it was seen as an opportunity for some sectors of the market to make profit, who bought those bonds.

this led to a self-feeding system, which was then pumped even further by speculative articles in the international media. The new investors in the bond markets didn't really fear much because they knew a bailout would occur so they basically would never lose money.

The Irish situation happened because when the new bondholders, hedge funds and vulture funds heard of the "haircut" they started selling like crazy and bond yields rose skyhigh. End of story for Ireland.

Hopefully Portugal and Spain can still be saved from the greed of some of these markets sectors. So I am all for Portugeuse banks buying our bonds. The more they buy the better. And I am certain they have the ECBs approval to do so.

and zorba, the whole of Europe was living above its standards, not only Portugal, Greece and Ireland, or shall I remind you that the UK's foreign debt is about 420% of its GDP? If that's not living above standards, I don't know what is.

Time for l'euroquantitativeeasing de l'europe

Robert – slightly off topic but for some odd reason your article reminded me of an old 1962 VW beetle (6 volt system) I once owned, named Clarence. Clarence was actually ideal for my purposes, despite the dim headlights, blinkers prone to short circuit, lack of horsepower, lack of gearbox synchro, non-existent suspension and uncomfortable and not entirely secure seats. Although it needed a hill to get the engine started, once it turned over, it ran quite well, particularly in reverse gear. I had an early warning when, one night about 10pm, it broke down on a quiet country road. Fortunately, I had some friends with me who helped bump start the car, in reverse of course, but, well........the writing was clearly on the wall. A few days later I serviced the vehicle myself, replaced the oil, filter and spark plugs and took the wheels off to change the brake pads. That was a revelation and possibly a mistake. I won’t bother you with tiresome details about leaky bearings and brake cylinders, sand in the drums and pads worn down to the rivets. Suffice to say I foolishly just put the wheel back on and carried on driving. Eventually though, Clarence stopped forever and no matter how hard my friends and I pushed, in reverse of course, the result of many years of lack of care and attention had simply proven too much. I’m not sure why I should recall this particular story now but I hope you enjoy reading it as much as I enjoy reading your articles and blogs.

Pedrolx
It does matter to us what happens to Portugal. If Portugal becomes yet another nation dependent on the ECB for its economic survival then this will impact on the political stability of the EU.
The people of the UK want to get out of the EU straight jacket and rediscover democracy. It is very clear the politicos involved in the EU project want exactly the opposite; they do not want any country to exercise individuality. The ongoing drive towards a federal European state can only be stopped by the markets; our politicians are complicit in the unification of our countries within a federal Europe.
We haven't voted for that, we don't want that and we hope, the ever deepening Euro crisis will break the chains that are dragging us ever onwards towards the European super state so desired by the political class in all of our countries.
The economic storm will be horrendous for everyone if the Euro fails including those of us not in the currency basket, but the riots and public unrest latent within member states just waiting to be unleashed when people realise what their own political leaders have committed them too will be much, much, worse.

It appears that the only way out of the international circular funding crises to restore equilibrium, short of substantially inflationary quantitative easing, will be to locate and retrieve the funds that were 'ripped off' from ordinary people (taxpayers, consumers, savers) by the financial 'industry' and that disappeared to tax havens.

Just as well Germany is a bottomless pit of money and will never be affected by all of this.

I read all the way through #23, Duxtungstu, eagerly anticipating the pithy pearl of wisdom at the end.

Nothing!!!!!!! Grrrrr.

23. At 17:48pm on 30 Nov 2010, Duxtungstu wrote:
Robert – slightly off topic but for some odd reason your article reminded me of an old 1962 VW beetle (6 volt system) I once owned, named Clarence........
------------------------------------------------------------------------
And the moral of the story is that if we keep hoping things will get better, then they will, or not, probably, maybe, almost, could, might, may, wont, cant.........WAKE ME UP!

Seems to me the whole system is tottering on the brink and all the QE and jiggery-pokery has merely bought a little time.

As an individual one has to make a decision as to whether you are going to pay all those extra taxes and raids on your pension to pay off the bonds held by the wealthy and powerful.....or..... work very hard and very quick to get your money out of reach the government by whatever means you can find.

Its no use moaning in a year or so's time that the bankers are still all rich and the government has taken all your savings to pay them, time for action is now. Offshore your money, get it into Switzerland, get it into gold get it out of the reach of the robbers we call government.

This comment was removed because the moderators found it broke the house rules. Explain.

#19 no I haven't misunderstood the Labour position. They argued for delaying the cuts. The Coalition put forward cuts instantly because they understood that the markets would respect that position far better. The market knew that Labour and its delayed cuts is like asking a child to tidy its room, "boy tidy your room" says the parent, "i'll do it tomorrow" says the boy. Tomorrow comes and the boy keeps saying he'll do it tomorrow, so the room never gets tidied. In the same way the markets never believed that Labour would fully implement the level of cuts necessary to bring the deficit back into line. Implementing the cuts now means what we have to borrow costs us much less than if the markets were not convinced and charged us a lot more as a result. I.e. short term pain would be much better than what we might have ended up with in the long term.

This for the record would probably be the case for any of the parties if they delayed the cuts, namely it's easier to put off doing something diffcult over and over again. Facing up to our debts gives the UK much more credibility than the "PIIGS" and that #12 is why the UK has a AAA rated sovereign credit rating. If we had followed the Labour way we too could be looking at BBB+ rating and CDS spreads of 400bps+ (perhaps an exaggeration but you get the picture).

Thanks

Mike

@Duxtungstu: You seem to enjoy speaking in the name of your entire nation. I amnot here to start a UK vs EU or UK vs Portugal fight (in fact we are the oldest allies in History).
But don't yuo find it odd that the media only complains and all possible solutions advanced by the other countries spell disaster? Whatever happened to optimism and above all solidarity. We are facing a crisis and we need journalists, and analysts to come up with solutions, not to keep writing about how awful things are, and how the solutions are even worse. They have a responsibility and I hereby criticise their take on the whole matter. And Portugal will not be dependent of anything, it's just struggling to find a way out of the crisis, why shouldn't it? Wouldn't Britain? The shorting of the portuguese bonds by bond vigilantes and speculators has put the country in dire straits, all solutions that give Portugal some leverage are more than welcome. But instead you read articles like this, only critical and very little optimistic. I say enough! And don't patronise me about democracy. We all live in democracies. The Portugeuse democracy is for the Portuguese people to defend, criticise and uphold. Thank you

@27 PacketRat:

My take on this post is that everything was OK if you accepted that Clarence really didn't want to go ahead - despite the wishes of the passengers.

Ignoring the problem didn't seem to help either. Nobody seemed concerned that something was broken!

It all seems - oh I don't know - just so topical!

This comment was removed because the moderators found it broke the house rules. Explain.

This comment was removed because the moderators found it broke the house rules. Explain.

#34 - I am sure RP will have all his dreams come true when Wikileaks dishes the dirt on the banks in the not too distant future. I for one can't wait.

Just a thought here but both Portugal and Spain have a very good chance of winning the vote to host the football world cup in 2018. Most of the football stadiums in Spain are not up to the required standard and will need significant improvements or rebuilding. Most of them are owned by local councils not the clubs themselves. So where will the money come from to pay for the improvements ? Are they going to cut expenditure on hospitals , schools and other front line services to build football stadiums ? Are they going to try to borrow it ! ! Holland have estimated that if they win the bid to host the World Cup , they will suffer a loss of 150 million Euros. What are the governments of these countries doing ? Will this country be asked to contribute more money we have not got , to prop up these irresponsible countries ? !

29 NLV - excellent post for those willing to listen. Peace.

I have been sitting on the sidelines, reading RP's blog for a long time. Initially, I thought the 'anti-capitalist' contributors were exaggerating the 'doom', but the more I see the more I'm convinced this chapter of human history will end in a shocking manner.

When a country has to resort to plundering it's pensions pot to pay the bills, as Ireland has, then you know it's all getting out of hand. You see until recently I had spent a good part of my working life in the pensions industry. When you work in that environment one of the basic rules that is drummed into you is that a private individual can't raid thier own pension pot before retirement....or they'll end up behind bars. Admittedly, this legislation has more to do with abusing the tax relief than anything else, but also it must surely help to ensure that people have adequate pension provision in future and not holidays and cars now.

Internationally, given the ever more vast amounts of money required to purchase even a modest annuity the majority of people working today in the 'West' are going to have a nasty surprise when they come to retire. So where will this leave the Irish people in years to come. Could they be facing years of grinding austerity that will continue on to their death? Will there be enough time to replenish the coffers if the good times ever return? Will it take 10 years, 20, 50? Pensions provision is a future crisis, and this type of action will just make it worse. It feels like the powers that be must have given up on the future. How very sad it's come to this. I sincerely hope Ireland can get back on track in a few years but just a glance of the figures make this look unlikely.

Remind us again which banks actually failed the stress tests!

#38, truths33k3r wrote:
"29 NLV - excellent post for those willing to listen. Peace."

Fortunately, most people won't listen: because there are a limited number of seats in the lifeboats.

as a very famous Englishman once said "take a look at the lawmen beating up the WRONG guy, oh man, I wonder if they'll ever know, they're in the best-selling show." It applies wonderfully here.

"Will this country be asked to contribute more money we have not got , to prop up these irresponsible countries ? !"

Britains deficit: 12%
public debt: 75%
foreign debt: 420%

figures is what we need not speculation

43. At 19:48pm on 30 Nov 2010, pedrolx wrote:
figures is what we need not speculation
----------------------------------------------
Great. Could you give me % Private debt. % exposure to : What institution. What Bank. What country. What ....... Thanks

Does Portugal have a say?

PoweringRamrod #24

You speak for yourself, and perhaps Paul Dacre, but not the people of the UK.

How about we guess the American bank that Wikileaks will destroy in the new year. Go short, very short and make a killing? So far Bank of America is where the rumour mongers are doing the damage.

It's that old joke isn't it? When the tide goes out you discover who has been swimming naked.

Given the crucifixion of the Irish nation to appease some foolish German banks who were active participants in a runaway boom induced by low Euro interest rates, what is in store for Portugal? Drowning in a butt of port?

It is just as we all expected: once the Irish were prevented from forcing haircuts on the all the bond holders then the only folk who were going to the barbers were the taxpayers of Portugal, Spain, Italy and Belgium.

Perhaps I should add to that the words `to start with'.

At some point the demon bankers will get round to us, again. So don't delude yourself that the UK is home and dry, expect further cuts. This is a feeding frenzy that will only stop when there is nothing left to consume.

#23 very interesting about 1962 6 volt beetle disc brakes ? i dont think so but the
analogy is real a 30 year old design that worked and exported well !! yes ultimately
it is balace of payments dont spend more than you earn collegiate in approach long
term view 2nd biggest exporter in the world what country would that be ? and it is
expected to support the rest of europe i dont think so for long

#29

"Offshore your money, get it into Switzerland, get it into gold get it out of the reach of the robbers we call government."

Truly spoken like a man who has not a clue what he's talking about.

And over at RBS where they're working hard to secure a public profit - 37.59p

I never thought we would have sub prime countries in the Euro!!

Here we go again. The perilous condition of Portugal's banks, and like Ireland, Portugal does not want a bailout. Apparently, Portugal has become too dependent on loans from the European Central Bank. The ECB, in reality, is financing the Portuguese Government.
By the end of June, Portugal's domestic banks were financing @ 9.6% of their balance sheets by borrowing from the ECB and other central banks.
The situation will require a redefinition of Portuguese banks' financing strategy. The ECB wants its money back. The ECB simply cannot finance a structural black hole in public sector finances.
This is why, along with the need for the banks to meet the new Basel lll capital thresholds, Portuguese banks have to raise billions of euros in additional capital.
Like Ireland, Portugal's financial rehabilitation will require a substantial package of loans from the EU and IMF, OR WILL IT?
Here we go again:
China's President Hu Jintao said that China is “available” to support Portugal’s efforts to come through the economic crisis that has prompted its borrowing costs to spiral this year. China's President Hu Jintao: “We are available to support, through concrete measures, Portuguese efforts to face the impacts caused by the international financial crisis, and deepen and broaden our economic and commercial cooperation.”
Vice Foreign Minister Fu Ying said on Oct. 28: “China has always given positive and favorable consideration” to bond purchases when making state visits.
Portuguese Economy Minister Jose Vieira da Silva on Nov. 6 said that the existence of institutions and countries that are interested in diversifying their portfolio with Portugal’s bonds is “a positive factor. …If we are able to place that debt with a logic of greater diversification and greater equilibrium among the various financial agents, that is a factor of greater security not only for the placement of that debt, but also for its management.”
Portugal plans to sell as much as 1.25 billion euros ($1.75 billion) of bonds due 2016 and 2020.
So is the "mandatory" bailout really "mandatory", or just an effort to keep China out of the EU. China's help was resisted with Ireland; China's help is goping to be resisted with Portugal. What is with the China-phobia? Do EU countries prefer to see their own people wallow in painful austerity when alternatives are available?

27. At 18:07pm on 30 Nov 2010, PacketRat wrote:
I read all the way through #23, Duxtungstu, eagerly anticipating the pithy pearl of wisdom at the end.

Nothing!!!!!!! Grrrrr.

I sympathize with 1962 VW beetle story but

I have a nice (FSH from makers garage) German car from 1999. Had trouble starting her (I've given her a gender, not a name) recently, even before the snow. Just had a service but I can still sense the trouble she has starting, she almost doesn't quite want to come to life. A bit more fiscal stimulus (press of accelerator and a bit more patience and then she sparks to life) I fear she won't tomorrow.
I think I need a new battery (is a simile to a heart too much of a stretch?). Can the Euro and the EU find such a transplant?

#12 - I knew it wouldn't be long before we found an Irishman blaming the whole affair on the British. Everything wrong in the entire history of the world is our fault isn't it - including the decline of Celtic economies that spent years living a sovereign Walter Mitty

Nick#46
You may have missed the quote from Gerry Adams; he doesn't think locking the Irish people into debt slavery is a good idea either.
He has a history of getting his point of view across to the wider public, and the banking sector in particular. The Nat West building in London still bears the scars of Sinn Fein's methods of political persuasion.

39. At 19:25pm on 30 Nov 2010, zummersetman wrote:
'I have been sitting on the sidelines, reading RP's blog for a long time. Initially, I thought the 'anti-capitalist' contributors were exaggerating the 'doom', but the more I see the more I'm convinced this chapter of human history will end in a shocking manner.'

Welcome to the party. The music and lights will be turned off at midnight. We're in the middle of nowhere, there's no taxi orders and we're snowbound.

I hope you've brought plenty of water, food and a comfy duvet. We're going to be here for quite a while.

Anyone want to pull my Christmas Cracker; anyone? It might have a way out of here.

Puft... No. A small set of screwdrivers. I've already have a set...

Oh and a riddle... How do 4 major economies trying to export themselves out of a major decline at the same time have a synchronized success?

And on the reverse side there is this: I don't get this one - The European Union (said with a Leslie Nielson expression)

Observation. The more Peston's blog exludes BBC HYS members. The more tedious it becomes to read - especially reading the graciously allowed few. Not unlike many banks or royal circles? Nope, this post won't appear as an unwelcome and simple BBC HYS member on Peston's blog - but feel better for venting.

So this is what has been really going on behind the scenes.A back door approach by the banks to prop up their unsustainable government spending without the knowledge of the E.U taxpayers.Still the French finance minister claims the e.u is functioning properly and will continue supporting all the dodgy banks and governments of the e.u.I wonder how many other countries are taking this back door approach of fleecing tax payers of their money.Especially as so much of this money has gone on greedy politicians personal indulgences like here in the U.K.

1 Mike D,
"The Labour Party's mantra of cutting=killing growth clearly blown out of the water. If credit markets won't lend you money (like Portugal) because they aren't convinced you can repay, then whatever growth you had will be a distant memory when the cost of sovereign debt hits 8%."
=================

The Eurozone has a different monetary system to us - since the end of Bretton Woods, the UK no longer needs to issue government debt in order to spend - that's how we solved the problem in the 70s, and we can still do that today. So when Labour made that claim, it was true for the UK, but not necessarily for the Eurozone.

Today, the only reason the UK issues government debt is so that the BoE can maintain a positive target interest rate and therefore control inflation using monetary policy.

If instead, we use fiscal policy to control inflation, the BoE would not need to maintain a positive target interest rate, and therefore the government could 'deficit spend' without issuing government debt.

UK government cheques CANNOT bounce! Theoretically, if the UK government never collected any taxes or issued any debt, they would still be able to spend because they are the monopoly issuers of our currency. This is not true of Eurozone countries under their current fiscal and monetary system.

This is why the Criminal Ratings Agencies are incompetent (and probably have some sort of agenda) - either way they can be disregarded by simply changing some laws to make their judgements irrelevant.

Brilliant! all of the above, well nearly all, should all run the country!
The sooner the "free market " collapses , the sooner we can start again! Bring it on, Debt Kills!

# 32. At 18:17pm on 30 Nov 2010, pedrolx wrote:

"The shorting of the portuguese bonds by bond vigilantes and speculators has put the country in dire straits, all solutions that give Portugal some leverage are more than welcome".

I would just like to point out that it was the shorting of Sterling by speculators when we were in the ERM back in 1992 that forced us out of the ERM. The current situation for Portugal and others in trouble seems rather analagous to that situation, except we were able to leave the ERM before membership of the ERM bankrupted us.

Far from gaining security by joining a common currency, the opposite has happened. That was our experience from the ERM but it was a lesson every the rest of the EU ignored, except the Danes who kept their opt out and also the Swedes who had the good sense to ignore their political establishment and vote against joining the Euro.

It is great that the really clever people with all the answers can be found on this blog. To be that clever and busy saving the world from economic meltdown (nice profit to be made there) but they still have time to share their pearls of wisdom. Are we not the lucky ones?

Hello Earthlings

Poor old Portugal, poor old Ireland, poor old Greece, all broke.

In fact all countries where the savings ratio is too low and doesn't cover the governments or its banking industries deficits, are potentially broke. Japan has a government deficit of 200 % of GDP compared to only ~100% in poor old Portugal, poor old Ireland and poor old Greece; but Japan is not broke. The Yen is not collapsing. This could be because the japanese save a lot of Yen and are willing to lend it to their government. They do not rely on flighty johnny foreigner.

A way out of this pickle is for the locals to save a bit more and lend it to their governments and banks. However one has to ask the question why anyone would do so? with deposit interest rates set at way below inflation, the risks of collapse so high etc. By compensating savers with a real rate of interest of 10 - 12 % or more, then people will lend to their governments. It is called a market rate. If the governments or banks can't afford it, then they will have to stop spending. Tough? Should not have borrowed so much in the past!

This is how economics works on Jupiter.

Germany is prepared to keep propping up its Euro colleagues even if the German people are not keen.
Having a strong economy and week currency suits its exports very nicely.
Whilst markets can be managed, to a certain extent, and the can kicked down the road it will be.

It is the sudden change, apparently unexpected, that will throw the system out (from where will it come?).

Creating more debt to cover existing debt and trying to prevent inevitable revaluation of assets will only prolong the agony.

what i love about these blogs is you spell out a few home truths
and the bbc send your blog for further consideration

30 ,34 .35

freedom of speech no oh no
right to say without hurting any one no oh no
puppets to gov and big business no oh no surely not
tax payers money supporting facist state oh surely not

the media big business and gov = facism

the first thing the people did when theyd had enough of facism was to target the oppressors of such facism
first the media who sold the lies and corruption
2nd the gov who carried out the lies and corruption
third big business and banks who profited from the lies and corruption

you ready

Rome wasnt built in a day but fell pretty quick

"Great. Could you give me % Private debt. % exposure to : What institution. What Bank. What country. What ....... Thanks"

You do that. As far as I know at least 60% of the Uk's debt is actually in the hands of French and German corporations. But I don't really have figures- does that make a difference? Two weighs two measures.

Just leave our country alone, there so many British ex-pats living in Portugal. Why has the media and the establishment of the UK now decided to put portugal under such pressure? Believe me, ask any of your expats living here we are the worst critics of ourselves, we don't really need to be evaluated by Britain or the British press, you say that Brussels commands our destinies but you are actually doing it more with all this media pressure on us, and your rating agencies, and your whatnot. You are more in control of our destiny.

Portugal is Britain's oldest ally, per Treaty of Windsor, signed in 1386, never revoked. In the name of the historical ties between the two countries, stop this. it's enough. We've had enough beating. Please stop this.

Debt doesn't kill, the ability to pay does, the gap between those who can and those that can not is the real problem.
If you have to borrow to survive its because you are under paid and the fact this imbalance as gone on so long makes this harder to stop, but has in the war profiteering must stop, prices must drop, Oh the elite won't like that.
You should be born into poverty work longer and harder so that a few can enjoy luxury unheard off.
Right through History (unfortunately this is not new) a backlash has followed, if the masses are given any hope or no hope,then the present system will fall.
Believe it or not this as only been possible by mass apathy

I love the fact that Germany, without declaring war, will take over the whole of Europe and the rest of Europe will be beholden to Germany for many years to come 9and paying for it). Now where is my towel?

#64. PaulattheRocks wrote:

"Hello Earthlings"

Perhaps on the planet Zog governments, like the USA, do not get so indebted that any reasonable return to investors breaks the barrier of the total annual tax take (which it would in the USA!)

But you are right - what we are seeing is the start of the collapse of the nugatory interest rate policy - the market will force it and this will inevitably bring about a depression similar to that experienced in the 1870 on our planet. Unfortunately the people we train to manage our, so called, economy don't know any history so they are destined to repeat the mistakes of the past.

Sardines, port, pottery, woolly jumpers, golf course, the short bloke who manages Real Madrid, nice beaches, now what else was it...........wiping out tribes in South America. We all have our history. Now then now then now then. Little country with big debts, a liking for drugs and sunny weather. Wow still not the UK yet.

I'm pleased to see that more are coming to the conclusion that the fundamental problem of the failing members of the Eurozone is that they are not in a position to print currency.

Is there any way out of the present mess other than Germany just giving Euros to the other countries? Loans just mean more debt. Higher taxes, belt tightening and reduced spending mean fewer imports from German industry. Nobody wins.

As for the weak Euro being good for Germany, in the pre-Euro days, the strong D-Mark was supposed to be good for Germany. Surely, what's good is a stable currency with enough strength and flexibility for industry and commerce to work: something no one seems able to provide long term.

Robert - if what you describe is true, then surely it almost amounts to economic lunacy...
Seems like the euro is in freefall at the moment - so I reckon the end is nigh...

Greece, Ireland, Portugal, Spain, Belgium, Italy........
Where will it end?
I always thought that the Euro experiment would'nt work...
Think about it, why would a country like Portugal change its currency from a competitive currency which attracted tourists and investment from foreign investors, to an over-valued currency which makes the country very expensive for tourists and investors. Reduced tourist numbers, reduced foreign investors, causes disaster.
The best thing for Greece, Ireland, Spain and Portugal is to get out of the Euro as quickly as they can, and return back to their competitive currencies.

The UK is certainly not out of the woods, LibCon pact have only taken us 18months back in time where we were already running a massive and grotesque deficit and that was on a rising economy. It is my guess that the LibCon will not even properly police the cuts and therefore the cuts will be diluted in their execution. In addition, no self respecting public sector employee will fall on his sword, offer to take a pay cut, shorter hours or pay more on their pension or retire a little later. No! what they will do almost to a man(woman) is to cut external expenditure, let the private sector go to hell in a hand basket, why should we give a toss.
However, I do agree that turkeys will never vote for Christmas and who can blame them.
What I do believe is that there are cause and effects lessons that we should teach more effectively in the UK and that is every product, service they specify and/or contract that is not UK based is shrinking the tax take that pays their wages and their budgets. In the UK we just do not appear to value our own products in the same way other countries do, it is almost that we shun our own stuff. Other countries simply would not specify or buy foreign kit if there was a domestic alternative, this gives their own companies a war chest from which to spring board into other countries.
This is not a case for buy British at any cost just make more effort to find a competitive UK alternative wherever possible.
The time has come for the UK to decide if it wishes to be a high tax country or a low tax country, we cannot sustain our present situation, the public sector pensions alone will sink us even if we as a nation went for a high tax system I would suggest that we may not make it through the woods in the medium term. It is about time politicians were shameless in their pursuit of what is best for the population of the UK as a whole and in the long term, rather reacting to events in a knee jerk manner. Tiny tinkering with the tax system and minuscule fiddling with the benefits is just not going to work, we as a nation need radical action from benefits to tax to the NHS.
We will never get it though, there are to many vested interests and our politicians are spineless career politicos who already have their eyes on the next election.

No.63 Arrrgh:

Well you're on here - what's the problem?

No. 77 I am but I know that you know that we all know there is only the knowledge that guides us to the conclusion of the benefit of knowing we all know so very little.

No. 78 Arrrgh:

So - we keep on trying!

Never mock someone else's opinion - it is just as valuable as your own.

This is worth a read - from the Irish Times. It does not make happy reading for the Euro.

https://www.irishtimes.com/newspaper/breaking/2010/1130/breaking5.html

Robert says:-
" ... it (the ECB) is in the invidious position of having channelled eurozone taxpayers' money, via Portuguese banks, to the Portuguese government for the funding of a public-sector deficit"

It is not exactly taxpayers' money. The ECB does not need to obtain euros from anyone, it can simply create any amount of euro denominated credit The process is essentially the same as the quantitative easing practiced by the BoE and the Fed, and in the circumstances may be a sensible thing to do.The only difference is that the credit is passed through commercial banks. The is presumably necessary to get around the rules under which the ECB is supposed to operate.

I didn't know Portugal was so important to the big countries to the point the whole world is worried about our country and our finances. I won't want a bail-out and want Portugal out of the Euro so we can control our own destiny and start doing so by devaluing our currency and have Portuguese (not European) fiscal policies. We were not ready to join the Euro yet if we had refused to join it, a few big countries would have been really annoyed with us. The Euro only works for big and rich countries. We are neither. This experiment will only end in tears and suffering to the Portuguese people. Maybe a more democratic version of Salazar is what we need to end our decades-old economic troubles and to make sure my country is respected.

Morning Robert,
thank you for providing some numbers and reasoning behind the current parlous state of Portugal.
It occurs that lending by the ECB to National Governments to keep their social programmes afloat is illegal under the Treaty of Maastricht.
Greece told porkies to get into the Euro (also illegal).
Irish banks lent vast amounts of investment money to banking cronies without too many questions being asked (maybe not illegal but certainly unfair to investors ignorant of the risks being taken with their money).
All of these factors were to be kept quiet although someone in the ECB must have known or at least suspected that something was wrong here.

Now , on a lighter note, I give you some more things to consider (if you don't know the answers then please consult Stephanie).
First of all, it seems clear that the Euro and the Dollar will reach parity early next year.
Secondly, looking at the futures markets, everyone is piling into oil and contracts for delivery Dec 2011 are already at $100/barrel (US).
What effects will these two major economic factors have on the health of GB Ltd?

Just a final afterthought, the world markets went into a spin over $26Bn dollar possible default by Abu Dhabi earlier this year, then we had Greece with Euro 120 Bn possible default, then Ireland with a possible default of Euro 130 Bn and now Portugal. It is scary, is it not, that the markets take fright and drive policy over comparatively small sums of money (haircut or not)?
Spain is twice as big as Greece, Ireland and Portugal put together and the American commentators (bless them) are predicting that a Spanish bailout is impossible because of the numbers involved. So what then?

78. At 23:16pm on 30 Nov 2010, Arrrgh wrote:
"No. 77 I am but I know that you know that we all know there is only the knowledge that guides us to the conclusion of the benefit of knowing we all know so very little."

Or, to put it another way (after D. Rumsfeld), we know a little bit about the known knowns, don't know about the unknown knowns but pretend we do, speculate madly about the known unknowns, and will surely fall victim to the unknown unknowns eventually.

Which pretty much makes your point -- AND proves that Duxtungstu should have bought a Volvo.

you can all pretend I am not writing here, or perhaps you think the Portuguese are unworthy of your attention, I have read all the comments, you speak with such despise and condescendence about this nation, as if we deserve to be treated this way. You should really read a little bit more history, perhaps your memory is too short, but if it wasn't for Portugal and its alliance with Britain, Britain might as well not be in the position it is now.

This constant flow of newsitems regarding my nation are demonstrative of the big prejudice and the taste for blood that seems to exists among the British media, and financial markets. It is sad to see this as the two countries do have a hisotry of helping each other in times of need, instead it's almost like people there are happy to see the country go bankrupt, and cannot wait till it happens.

Perhaps you should reconsider your stance. This is just plain wrong, you are feeding on the speculators who will do anything to shorten the Portuguese bonds and sell them in the secondary markets. You have the ratings agencies working on your side (or else how would you explain Britain's AAA rating with its own problems or even Ireland which still has AA ratings for its bonds), The swiftness with which the rating's agencies downgraded Portugal and SPain may as well be indicative of a deliberate attack on these two countries, which have done little to deserve this fate. Ok, show your power to the world, if that makes you so happy and excited. I just hope that one day history will vindicate the truthness in this whole affair, and show how Portugal and Spain have been victims of an all to greedy market combined with an over-speculative media.

Regards from Portugal, the country of sardines, golf courses, and piggies. Hope you all toast to its downfall. Congratulations, you are almost succeeding.

And go ahead ignore yet again this post. The truth has been said and that is worth a lot more than all the money that there is in this World

Tchau.

#85. pedrolx wrote:

"you can all pretend I am not writing here, or perhaps you think the Portuguese are unworthy of your attention..."

Don't take it personally, pedro. Very few of the regular contributors to this forum listen to anyone else's point of view. Which is why we just watch, amused, as the real debate takes place elsewhere.

#83. splendidhashbrowns wrote:

"First of all, it seems clear that the Euro and the Dollar will reach parity early next year... Secondly, looking at the futures markets, everyone is piling into oil and contracts for delivery Dec 2011 are already at $100/barrel (US).
What effects will these two major economic factors have on the health of GB Ltd?"

Is your memory really so short (are perhaps you are simply so young) that you don't recall that the euro and the US dollar were at parity relatively recently, and that oil was well above $100 a barrel?

"32. At 18:17pm on 30 Nov 2010, pedrolx wrote:
@Duxtungstu: You seem to enjoy speaking in the name of your entire nation. I amnot here to start a UK vs EU or UK vs Portugal fight (in fact we are the oldest allies in History)."

I apologise unreservedly for any wholly unintended suggestion of criticism of Portugal. Or Ireland. Or any other country and it's people.

I think I should make it entirely clear that, like you, I don't speak for anyone other than myself. If you have followed the events of the past 30 years, events that have led to the recent dysfunction in global economies, then you would know that the present situation is a symptom of the inadequacies of the workings of our national and global political and economic institutions and structures and these inadequacies have not been properly addressed. Hence their failure. It is not the fault of the Portugese, the Irish, the Americans, the British, the Greeks, the Chinese or any other nation. To take that perspective is, in my view, simple minded cheap nationalism.

The tale of Clarence was more or less true. But that is all it is. A story. Personally, I look back on it with a degree of humour i.e "Was I really that stupid? Yes". Readers will have to make use of their own minds and derive their own "pithy pearls of wisdom" from it (27. At 18:07pm on 30 Nov 2010, PacketRat wrote: ). For me, there's very little mystery to the tale. If you don't put in the effort, think ahead, anticipate the worst, plan for it and ACT ON IT while hoping for better, then you are almost certainly creating and storing up your own problems that will likely surface, often at an inopportune time, in the future. That's the message. Hopefully, you didn't need me to tell you this. We are all grown ups here are we?

If you want some sort of solution, the only one I have to offer is a strong suggestion to begin discussing, planning and acting on reforming the fundamental issues underlying this crisis that has arisen out of institutions of our own construction. Those who have responsibility for managing and running our global and national political and economic institutions and who are paid substantially more than me need to be pressured to do so.

Hopefully this much is clear?

83. At 00:55am on 01 Dec 2010, splendidhashbrowns wrote:

First of all, it seems clear that the Euro and the Dollar will reach parity early next year.
==============================================================

Well, that's far from clear to me, but let's assume it to be true. In that event, the US economy will really tank, in a way that makes what's gone on so far look like a sunday achool picnic. I'll bet the boys at VW and Mercedes can hardly wait.

Or to put it another way, I will be astonished if the US lets it happen. Their whole (and only) strategy is to depreciate the dollar, make their goods cheap abroad, and stem the flow of imports.

85. At 05:41am on 01 Dec 2010, pedrolx wrote:

Pedro, I have never heard anyone in Britain say a bad word about Portugal, in fact I would say that there is a great deal of respect and affection for your country, its people and its history.

Just about every country in Europe has a problem with its banking sector, Germany included, and of course the UK has absolutely nothing to be proud of in that respect. The "markets" currently smell blood, and they will continue to prey on the nations of Europe, one at a time, as they have been doing, until the political leaders of Europe show a willingness to resist.

This story about Portugal is just a chapter in an ongoing saga- it is not an attack on your country, just a recognition of where this very dangerous game is currently being played out.

#85. At 05:41am on 01 Dec 2010, pedrolx wrote:
"you can all pretend I am not writing here"

------------------------------------------------------------

I'm not pretending your not writing here, I agree with everything you're saying.

90. At 08:35am on 01 Dec 2010, haufdeed wrote:

Eloquently expressed. Thank you.

This comment was removed because the moderators found it broke the house rules. Explain.

Once again Peston is trying to pin all the blame for the failure of the Euro onto the banks but anyone with any sense can see that these current 'banking' problems are at present limited to weak Eurozone areas led by irresponsible governments. THIS IS NO COINCIDENCE.

The promised land has turned into a desert of debt.

86. At 07:17am on 01 Dec 2010, rbs_temp wrote:

> Don't take it personally, pedro. Very few of the regular contributors to this
> forum listen to anyone else's point of view.

That's no way to refer to Robert Peston!

> Which is why we just watch, amused, as the real debate takes place elsewhere.

Then stop coming back, like a bad smell. You have nothing but bile to add to the discussion. It must be tough being at the bottom of the pile, but bankers have to stay quiet while we decide how to fix your mess so you can't keep causing all this trouble, year after year after year.

As for pedrolx, he's been belted by your crowd too, so stop making out as if you could give a hoot. The most helpful thing for you bankers to do is to butt out until we've decided your fate.

One way or the other, you will get sorted out once and for all.

It is just a matter of time before Portugal too goes cap in hand to the ECB/IMF.

Throw the weakest to the playground bullies, maybe it will distract him long enough to take his eyes off you. The cowardice shown by the western countries in responding to this criminalism is terrible - divide and conquer. I see the next victim in the Lord of the Flies saga is being lined up as a few posts tag Belgium onto the end of their offensive acronym. The response of those out of the spotlight reminds me of my school days, as tomorrow's victim giggled hysterically while today's victim received a boot. Enough of these ridiculous speculative posts from journos who are so in touch with economics that they didn't foresee the biggest downturn in recent history until it was on us. And enough of these replies, talking up speculation - you might think your post makes no difference, but collectively you're strengthening your future nemesis. Make no mistake, Britain, you can't hide in the corner unseen for ever.

First they came for the Greeks, and I speculated, excitedly, because I wasn't Greek
Then they came for the Irish, and I was thrilled by the excitement (oh the humanity), because I wasn't Irish,
Then they came for the Portuguese, and I tried to garner praise for my insight by predicting the outcome, because I wasn't Portuguese


And when they come for you, don't worry, there will be plenty of Chinese, American and German sites with flippant "I think the UK is gonna tank, I'd bet on it" remarks. Our kids are going to shake their heads in disbelief when they hear how a whole hemisphere descended to "take them, spare me". We've got to stand together people.

@pedrolx
bon courage from a Greek. Do not worry too much we will survive!
Friendly advice: I know that it is a difficult choice but do not go for ECB/IMF, it is futile. Default now that you can and do not be afraid to go out of the Euro now that you do not have an new Euro loan like us. Our politicians have scared us big time and we went for the troika 'help' but appart from the needed structural reforms all the rest has no other benefit than default in the end anyway, with a massive new loan on top. So it is futile and actually makes things worse. Default and make the necessary reforms. Do not believe the politicians they are one and the same with big banks, big business and the speculators. They are all together. We will do the same soon anyway but in a worse position. There is no way that growth can return to our countries with this austerity rules under the Euro. Eirher complete monetary and fiscal unification in EZ or Euro is dead. It does not work for the majority of countries. We will default have a haircut and then slowly grow and have our independence.

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

Let's get one thing straight here. The only reason why entire countries are now going bankrupt is because they chose to guarantee the losses incurred by their banks. The debt incurred by the banks was a problem for the banks and their investors, NOT the taxpayers in each of these countries.

So why did governments choose to guarantee the banks and their rich investors at the expense of the general population? Why did they not simply guarantee deposits and let the investors take a hit? Remember - an investment is supposed to ba a risk.

Could it be something to do with greed, corruption and looking after their vested interests in the political classes? Surely not.............

By bailing out Greece, Ireland and soon Portugal, with Spain and Italy to follow, all we are doing is making the innocent taxpayer cover the huge losses incurred by high powered investors.

This is a mass redistribution of wealth from the poor to the rich!

And it is being perpetrated right under our noses.

For all the arguing, the best post here is #4. The euro is a failed experiment and MUST be wound up.