Who pays for Portugal's mess?

There is also the effects of the predicted rise in ECB bank rate but which will probably not affect the Portuguese problem with its current punitive interest rates. Surely what is called for is not the piecemeal chasing of financial crisis exacerbated by ratcheting up austerity periodically but a pan Europe plan to rescue these economies and reschedule debt to that the financing obligations can be matched by the performance of the economy over say the next 5 years - a mini Marshall plan.

Why the continual scare mongering about the catastrophic consequences of default?

Default is the most natural thing in a capitalist system. It flushes out mis-allocated funds. It punishes both the borrower AND the lender for their folly.

Many countries have survived default. The recent examples of Argentina and Iceland show that this is probably the best solution in the long term:

https://golemxiv-credo.blogspot.com/2011/03/ireland-greece-and-portugal-should.html

''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''

Wasn't our commitment to the ESM Alistair Darling's leaving present to the country? Perhaps this additional liability was what Ed Balls was refering to when he talked about Black Wednesday....

The danger of a Domino effect appears to be real and immediate. Considering the banking crisis started in 2007 we cannot draw a line under this crisis. It seems to be only a matter of time before the stresses affect the European central bank and Germany's patience. https://bit.ly/eofGqT

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

With the Eurozone on the edge of destruction and the USA not able to agree on this years budget , it makes you wonder if there is any spare cash for additional bailouts to sovereign states.

For instance if the UK required a bailout in 1 years time , who will offer to lend us the money? Europe-bust , USA- bust , Middle East -under regime change . so that's just leaves China.

If you really think about it , who would want to buy sovereign bonds, the idea is they are 100 % safe . The reality is sovereign bonds are probably more risky than most companies. UK v John Lewis (At double the yield) you choose ?

Amazed to hear on Radio 4 this morning that Hedges and Banks are backing Portugal to Default and will make money out of it!

I'm all for covering risk, but this must surely be stopped?

This is a political problem now, not a banking one. Government must interveen to stop immoral behaviour.

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

RP Wrote:

"Who pays for Portugal's mess?"

A: Everyone, except those who should do.

Privatise profit, socialise debt, same old, same old!!

Surely the important question is how much bonus was paid to the Portugese bankers who borrowed money from the ECB and lent it to their government.

"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."


I can't decide if this just an expensive game of pass-the-parcel or a very big Ponzi Scheme orchestrated by the Portugese Central Bank. Either way what is becoming increasingly clear is that if the ECB isn't bust by now, it won't be very long before it is. I've said it before and I'm more convinced of it now; a carefully coordinated series of sovereign defaults and a complete re-working of international bond markets is going to be the only sure-fire way to sort this out.

7. At 11:50am on 7th Apr 2011, MyVoiceinYrHead wrote:
Amazed to hear on Radio 4 this morning that Hedges and Banks are backing Portugal to Default and will make money out of it!

I'm all for covering risk, but this must surely be stopped?

This is a political problem now, not a banking one. Government must interveen to stop immoral behaviour.

==========================================================

Whats wrong with taking trying to minimise risk for a company, everyone complains when companies allow excess risk taking behaviour to occur but now you all complain when they DO take risk seriously and try to hedge against events happening.

seriously make your mind up

I think some care is needed here as we are very uncertain about what will happen next for Portugal or in what form aid will come for her. The Euro zone is often slow and ponderous in its decisions...

I did see the contribution figures for us explained in a good blog post earlier.

"How much will the UK contribute?
There is a European Commission mechanism for this called the European Financial Stability Mechanism and we are liable for 13.5% of it. Our share of the IMF is 4.53% and we are liable therefore for that percentage of any lending it may make."
https://t.co/Rs6FXP7

But we do not know yet how much Portugal will get from these sources or whether we as in the UK will offer them bilateral funds like we did for Ireland...

You're right about the domino effect Robert, just watch the money markets go after Spain now. If that domino topples then things will get very serious.

fire fire poor on petrol abd more petrol , then stand back.

that is what has been happening in Portugal, not actually getting to grips
with the problem of many state addition to debt and public spending as a means to great growth. Ie the fundamentals were not in place. The export of jobs to china and India too have not helped.

The germans look good because they export but are these exports being paid for by debt and public spending largesse in other countries which means its only a matter of time untill it effects germany.

too many polciy makers are blind to the real problems of the Euro economics and the UK as well

6. At 11:41am on 7th Apr 2011, hughesz wrote:
With the Eurozone on the edge of destruction and the USA not able to agree on this years budget , it makes you wonder if there is any spare cash for additional bailouts to sovereign states.

For instance if the UK required a bailout in 1 years time , who will offer to lend us the money? Europe-bust , USA- bust , Middle East -under regime change . so that's just leaves China.

If you really think about it , who would want to buy sovereign bonds, the idea is they are 100 % safe . The reality is sovereign bonds are probably more risky than most companies. UK v John Lewis (At double the yield) you choose ?

.....
Is it any wonder Gold and silver are hitting new highs.

So we might be 'on the hook' for between £1bn and £5bn (depending how the aid is derived). But we might receive either £1.6bn or £26bn (depending how you count it). So we stand to make a lot of money? Possibly, but all this means is that another European country will be liable for making sure our exposure to Portugal does not go into default. At least that is my understanding of what is said above....

Did the IMF factor in the 100Bn plus exposure to Spain in its back slapping predictions or was it another case of trying to fool people, we are kidding ourselves if we think that the austerity measures invoked by our Government, are going to keep our heads above water, when every few months another pledge to bailout yet another country comes along.....

#14. At 12:13pm on 7th Apr 2011, JPSLotus79 wrote:

"You're right about the domino effect Robert, just watch the money markets go after Spain now. If that domino topples then things will get very serious."

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Already started. Greece Ireland and Portugal were just qualifying rounds, the proper competition began a few weeks ago once Portugal's fate was sealed. In reality the PIIGS Countries are just a sideshow for the two real biggies and they both begin with "U".

IMF gives Spain vote of confidence, now why would it do that, why SHOULD it do that?

Why on earth do people bank with these bankrupt, maybe corrupt even, or dinosaur banks, one must ask.??

When people wake up to this simple fact, that some (or most?) major banks are just not viable and must be supported by THEIR own money through taxes, then perhaps we will see the real free market operating...

Sorry George you will seek any metaphor to justify the depth of your cuts but it does not wash.
Britain is not Portugal, nor Greece, nor Ireland, nor Spain. For one we have our own currency and our own central bank which can control when they want to rise interest rates as we have seen again today. The key difference is the maturity of our debt profile. The UK’s longer debt profile makes it much less vulnerable to short term rises in interest rates, in sharp contrast to Portugal or Greece.

Who pays for Portugal's mess?
European taxpayers.

If you are a saver or pension fund holder - be very afraid.

It will either be inflation or catastrophofic default that will sort out the problem.

The Bank of England is going for the inflation route, Eurozone and ECB is heading toward the crumbling house of cards route.

abune wrote on previous blog :-

On the general point, in the 18th and 19th centuries, capitalism in the UK relied almost entirely on share capital for finance, and the stock markets existed to match investors with business. Most of the investors were wealthy individuals who were in effect investing their spare cash in the various new ventures which were mushrooming at that time. The UK railway system was built almost entirely on share capital, for example. The idea of borrowing from a bank to finance a business venture was anathema to the Victorian mentality. Any business borrowing from the bank in those days really had its back to the wall.

The banks have become a huge cost to the rest of the economy. Look what we achieved in the Victorian era, although with very rough conditions for the poor in the UK and elsewhere in the empire.

If Portugal defaults or requires substantial restructuring of its debt, so will Greece and Ireland and the UK is particularly exposed to the latter. That will cost us whatever happens.

But this all goes to show two ultimate follies:

1) while banks have been printing money willy nilly under Basel 2 and charging interest on it, central banks and currencies get their knuckles severely wrapped for doing the same thing (aka QE). They have had to do this because the banks have made such a mess of things buying junk US property bonds and (particularly in the case of Ireland and Spain) funding the explosion of uncontrolled real estate speculation that they stopped lending (ie printing money) themselves, and

2) without common fiscal and political controls across the Eurozone such issues were bound to arise at some time. I cannot think of another instance of common currencies being created before such controls were in place - in Roman times the cirsteces and denari followed quite a long time after 'unification', the US dollar only had brief competition from other dollars after independence and a number of countries were 'unified' before using the Reischmark in more recent times.

The architects of the Euro really didn't think it through - or hoped it would never happen in today's merry-go-round of all-money-is-debt. It was of course a political answer to a banking problem - the issue really being the massive inefficiencies and bureaucratic attitudes of banks (hidden by the enormous turnovers and the ability to print their own debt) that still impedes cross-currency trading.

This is what should have been tackled. We may be better off out of it but the taxpayer and population will still pay the price because only the banks can print money while everyone else (governments included) have to pay for it.

And what is our opposition's solution to all of this? Borrow and spend more!!!!

You really couldn't make it up

Yes, they all love Keynes now, pity they forgot to follow him and run a budget surplus during the time we actually had a growing economy. No, they preferred to borrow and spend then too. No talk of Keynes whatsoever. Hmmmm, maybe all they know is borrow, tax and spend, a bit like Portugal and Greece? Wait a minute, there's a theme emerging here......get a socialist Government, get a financial crisis? Who would have thought it?

12. At 12:03pm on 7th Apr 2011, avalanche-jersey wrote:
Whats wrong with taking trying to minimise risk for a company, everyone complains when companies allow excess risk taking behaviour to occur but now you all complain when they DO take risk seriously and try to hedge against events happening.

seriously make your mind up.

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

1) Banks like to make one way bets, so while you say it is good that they are hedging risk, their actions have an effect on the markets. The rating agencies (who suddenly seem to have grown a pair when it comes to rating countries) will react and downgrade the target of the banks hedging, making it even more likely they will default and it all becomes a self fulfilling prophecy.

2) If banks win their bet, someone else loses. That someone is turning out to be the taxpayer, which is remarkable as when the banks lose its that same taxpayer that loses out again.

3) The public want the excessive risk taking to stop. That's all. It isnt hard to understand is it. The banks can't stop though, they are addicted to risk because risk brings with it big bonuses so instead of stopping they are just hedging to offset the liabilities onto someone else.

"The UK’s longer debt profile makes it much less vulnerable to short term rises in interest rates, in sharp contrast to Portugal or Greece."

It's not vulnerable at all. The UK Government sets the rate on Sterling debt - they are doing the private sector a favour by even offering such an unnecessary relic of the long past Gold Standard era.

Since the private sector is hoarding Sterling financial assets at the moment, I'm struggling to see why they should be rewarded for keeping the government deficit high. Remove or reduce the reward and you will see increased spending, increased taxation, lower deficits and undoubtedly a lower currency.

All of which are needed to get us out of the doldrums.

The price of saving the euro is years of austerity...

Oh darn! Once they've gotten bored of the euro they'll be after us again soon...
I think we're not cutting enough! 500,000 public sector workers thrown overboard in the UK aren’t going to be enough to satisfy the almighty Bond markets for much longer. Quick! Lets sack even more of them - Starting with: teachers, nurses, firemen/ women, social workers etc, etc! There’s too many loafers being paid fortunes for these non-jobs… We need to be MORE AUSTERE! EVERYONE MUST START BEING MUCH MORE AUSTERE RIGHT NOW (OR THERE'LL BE NO SUPPER)! STARTING WITH THE WORKING PEOPLE AND THE UNEMPLOYED, THE SICK, THE ELDERLEY, CHILDREN ETC, ETC...
Every public sector job MUST GO (or be placed 'at risk') so we can cut some sort of deal with the Money Masters and perhaps they won't set their 'Markets' on us anymore... Nick, Gideon and Dave please deliver us from the tyranny of the Bond Markets/ and other 'markets' oh please?

Yours truly,

Your ever devoted

Ragged Trouser Philanthropist

Mushrooom wonders if there isn't a method of applying "insurance fraud" or "trade description" legislation against the financial institutions?

Rating bad debts as AAA looks like 2nd-hand car trader stuff (sawdust in the gearbox anyone?)

Hedging against market fluctuations then causing those fluctuations looks like getting a bloke down the pub to torch your old banger for the insurance money.

Where is the government with enough teeth to freeze the assets of these crooks?

It would be kinda neat to hear the next round of ambulance-chasing adverts go something like...

"Were YOU mis-sold a CDO? Due to new government legislation you may be liable for compensation. Call "1-800-I-want-my-money-back". Our latest winners include Miss PIIGS of Europe, who was repaid 460bn euros. Don't delay, Call today!"

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

Perhaps this is off-topic, but here goes... Markets, right, - an arena where people reward good results and performance by lending you money at more favourable rates than your poorly performing neighbour. You may quibble about the wording, but the particular words I want to question are "performance" and "people".

Performance first of all. Not many people in the market react to performance - most react to what others are doing in the market, by anticipating what others in the market will do, or following what others are doing. It is, after all, just a glorified branch of Ladbrokes where people bet on the future by studying form or going with the flow. (No one who studied form would bet on the US at the moment, but it's probably still the long-term favourite.) It's a subjective process that allows for booms, busts, panics and all the other human frailties you would probably want to keep well away from money.

Now for People. Just what percentage of market decisions are taken by people? Surely computers take more? But computer systems are written by people, so we can assume the computer is using the same logic as the people who defined how the program should work? I can see 2 problems here.
1. Computers work very fast and don't ask themselves "Is this a stupid thing to do?". We've seen examples of crazy trading over the last few years because of this and, to be fair, we've seen some remedial actions to try and stop it.
2. But we can use the computers to monitor "market behaviour", so we analyse cause and effect. And if the market is driven by computer software we are probably just analysing the rules in a handful of programs. And that might be more predictable than a larger number of individuals? So if I had a hedge-fund and wanted to make a mint, I might be tempted to modify my program to make some small trades, designed to elicit a larger market reaction to my advantage.

Now I wouldn't tell anyone what I was doing and I certainly wouldn't be doing this from within the same business, so no one would be the wiser, would they?

As someone who has written software since the dawn of time, and studies psychology very closely, I think we need to reappraise what Adam Smith called "markets"; I don't think they are what we think they are, any longer.

The Portuguese banks are being held afloat by borrowing from the ECB to lend to the Portuguese government. If the Portuguese government go directly to the ECB for the money then the Portuguese banks will sink.

Portuguese government will nationalise the Portuguese banks and hand over control of the Portuguese CB to the ECB.
The IMF will take control of the Portuguese economy.

Spain will go the same way (but Santander may escape like Barclays and HSBC did)
Italy will follow.
France and Germany will cede their Central Banks to the ECB as a gesture of unity and the rest of the EZ countries will be strong-armed to do likewise.

One EZCentral Government and One EZCentral Bank (it was always the plan)

Wow, can it be true? We taxpayers are taking on more debt while the top 10% take on still more wealth. Surely this is taking the p*** to such an extent that something somewhere has to give. If we are suffer pain, then let it be the pain of change and not the pain of same old same old. I sure am getting tired of touching my toes.

Looks like we'll be joining in whether we want to or not.

The BoE/MPC decision I expect will devalue the pound a little against the Euro. As the Europhiles are always keen to point out, a large proportion of our trade is with Europe. Selling will be a bit easier for our exporters but imports will become more expensive. More inflation could be on the way.

Rate increases for a period may not be driven directly by inflation but by currency appreciation/devaluation. The longer that it goes on without an increase in the UK, the greater the first interest rate increase here will probably be. And greater the collateral damage... ?

2.5 or 3% in the UK by December 2011?

The 'cuts' being made to get us out of the awful economic mess created by the Labour party, amounting to £6.2billion, are being wasted on bailing out Eurozone countries like Ireland, Greece and now Portugal (another £4billion?) whose policies once mirrored those that people supported by Peston want us to copy.

"Arguably, the European Central Bank and Central Bank of Portugal have been lending to the Portuguese state - without admitting as much - with Portugal's banks acting as agent."

I think we need to remind ourselves why we are all in this mess. Put simply, our governments (on the people's behalf) have underwritten the bad debts of all the badly run banks. This makes the country and its people liable for the banks debt.

Is it not ironic that the Portuguese state, which is now liable for these losses due to government promises, has to borrow money (in the form of bonds) through the very same banks the country just saved from going bust? Meanwhile, the bankers increase their already obscene bonuses and the citizens lose their jobs or take a wage cut.

In much the same way, citizens will lose their jobs and when thay can't afford to pay back their mortgages, who will gain? The banks when they repossess the houses.

What we have here, ladies and gentlemen, are some very shrewd bankers and some very stupid and naieve politicians who were willing to sign away our hard earned money at the stroke of a pen.

Or maybe it is just that they're all in it together?

There was a loud cheer on a City trading floor at the news of the raising of interest rates by the ECB of 0.25%. The presumption is that money was made off that news. This would mean that the City is supportive of squeezing mortgage holders and hence see profit opportunities in a depressive environment. This provides significant evidence that banks see benefits in a shrinking economy which fits into the paradigm of Tory economics of exclusion and distinct lines ineqality

The smaller the Boys club the better the control???

and the rather obvious point you have appear to have missed Robert, namely that this episode is further vindication of the coalition's management of the economy and their approach to paying off the deficit. As Vince Cable pointed out this morning we have a higher deficit than Portugal but interest rates similar to France and Germany. Any chance of those idiots who went on the march against the cuts changing their minds I wonder ?

We just have to face facts here. Ireland, Greece and Portugal simply do not have economies capable of generating the cash to pay back the debts they have accumulated within our lifetimes. Tourism, wine and agriculture aren't going to do it. Ever.

So whatever mechanism is put in place will involve huge losses being incurred SOMEWHERE. All governments can do is choose where: those countries taxpayers, other countries taxpayers, bondholders or shareholders.

The fact that they are trying to place it on "other countries taxpayers" (like ME) is, in my opinion, grounds for mutiny. We need to sweep out of office the officials trying to do this and get the hell out of the EU as soon as possible.

Leave the Germans and French to sort out the mess their private club has created.It's sad, I'm quite pro-Europe, but not to the extent I want to aquire its debts.

The EU should be planning for controlled default, rather than bailout.

#19 You are correct:

"IMF gives Spain vote of confidence, now why would it do that, why SHOULD it do that?"

I noticed that too. Ask yourself, why would the IMF give a vote of confidence to a country which claims it is financially sound?. This sounds very much like the finance ministers of Greece, Ireland and Portugal all insisting that they "didn't need a bailout".

Just wait and see...........

re #14
You have a point.

But I think I am more concerned with the rest of the globe. I suspect some serious amounts of cash may start to chase higher rates all around the world. There was global concensus to go to low/no rates a couple of years back.

Reversion to normal rates may not be done by inter-Governmental and inter-central Bank agreement but a helter-skelter scramble for money.

The message on the protestors banner is about right: "ENSLAVED BY MONEY" it said.

Greece - Gone Bust!
Ireland - Gone Bust!
Portugal - Gone Bust!
Spain - Could it be next?

And what about Italy, the UK and yes, the mighty USA. All are looking fragile.

Question: If these countries have all gone bust, where HAS all the money gone? What we are doing right now is propping up a discredited system at great expense to the taxpayer, simply to maintain the rich and powerful in their exhalted positions.

It is time for a structured default!

Funny how we all ignore the fact that Soverign Debt, in the UK at least, is less than 25% of Financial sector debt. House Hold debt is also less than 33% of Financial sector debt. The financial sector should therefore be cringing at interest rates hikes?? So why all the smiles then... Well, they live in a parallel universe where the same rules do not apply.. Bailout money is free money to them.

Time to find a new method of introducing bailout cash into the economy... though the bank accounts of individuals is an option.. but then we will be destroying the capitalist system as we know it. General affluence is still seen by Capitalist as socialism because it reduces the influence of corporations??

Considering that the original PIGS involved Italy and not Ireland is there any information on the state of Italy's economy? Or is that particular domino being sufficiently hidden behind the Berlusconi trial as none of the papers are interested in the economy when there is sleaze to be castigated?

I cannot see how Portugal will not be bailed out at similar interest levels to Ireland and Greece as without a full bail-out Spain will surely fall due to their exposure to the Portugese banks.

37. At 13:30pm on 7th Apr 2011, James wrote:
"Arguably, the European Central Bank and Central Bank of Portugal have been lending to the Portuguese state - without admitting as much - with Portugal's banks acting as agent."

I think we need to remind ourselves why we are all in this mess. Put simply, our governments (on the people's behalf) have underwritten the bad debts of all the badly run banks. This makes the country and its people liable for the banks debt.

Is it not ironic that the Portuguese state, which is now liable for these losses due to government promises, has to borrow money (in the form of bonds) through the very same banks the country just saved from going bust? Meanwhile, the bankers increase their already obscene bonuses and the citizens lose their jobs or take a wage cut.

In much the same way, citizens will lose their jobs and when thay can't afford to pay back their mortgages, who will gain? The banks when they repossess the houses.

What we have here, ladies and gentlemen, are some very shrewd bankers and some very stupid and naieve politicians who were willing to sign away our hard earned money at the stroke of a pen.

Or maybe it is just that they're all in it together?

........
Thats my take on it. I guess we are all in this together, its just that a few are making a packet out of the misery that they created for the rest of us. I like the description; "socialise the losses and privatise the profit", most appropriate.

@Robert Peston
"Default by Portugal might not be catastrophic on its own for the stability and strength of the European financial system -..."

Robert, lots of comments now make clear, that it is the hedgefunds here, speculating against countries, with Credit Default Swaps, which is one, if not the prime reason, why europeripherie countries are in difficulties.

Is it not time, to argue for the immediate ban of CDS in Europe?

Clearly, banning CDS would immediately stop the urgent calling for restructuring and defaulting - as nobody could make a profit from it. that alone would alleviate the crisis.

That would give each countries more time to get their house in order, and would lower yields automatically.

An end to Credit Default Swaps would mean an end to the "eruocrisis". It does not cost anything - it does not inconvenience anybody - why do you not ask for it, Robert?

41. At 13:36pm on 7th Apr 2011, James wrote:
#19 You are correct:

"IMF gives Spain vote of confidence, now why would it do that, why SHOULD it do that?"

I noticed that too. Ask yourself, why would the IMF give a vote of confidence to a country which claims it is financially sound?. This sounds very much like the finance ministers of Greece, Ireland and Portugal all insisting that they "didn't need a bailout".

Just wait and see...........

.........
A vote of confidence by the IMF, is like the sting of death. Just watch the price of gold and silver sour as people look for a safe haven for their money.

Robert

Surely we all realise by now we are just papering over the cracks in an attempt to postpone the inevitable day of reckoning.

Surely someone as bright as you should be planning for what comes next???


https://www.accountingweb.co.uk/blogs/jefflcbba/mad-lemming/p-piigs

I just think it is fantastic that we can afford to lend £1.6bn to a failing economy! Shows that our financial problems are nowhere near as bad as the doom-mongers maintain. This, plus the £650m Cameron pledged to Pakistan. We really are flush!
I read all the economic technical blather above, and it just makes me sad that our moral ethics have plummeted down the toilet!

This is entirely predictable. hedge funds will team up to provoke bond strikes on Eurozone coutnries one after the other. Greece, Ireland, Portugal and Spain is next.

The reason they are doing this has little to do with fear of haircuts or defaults. The primary reason is that a co-ordinated bond strike makes the Hedge funds massive profits.

The hedge funds know that each of the Euronze coutnries ahve to be bailed outb ecause of the sysetmic crisii across the fiancial system that will arise if the EU or IMF dont bail them out. It is a case of more socialisation of fiancials ector liabilites and debts.

The Hedge funds profit as they can take CDO positions before the bond strike that make them large profits. They also then get much much higher yields from the bonds that are bought if they can co-ordinate a strike. The EU or IMF are eventually forced to step in and bail out the targeted Countries with a tax payer funded injection of funds. After this its off to the next target for the Hedge funds.

Moral hazard? corrput? Evil?

43. "Where was the money gone?"

It probably never existed in any meaningful sense and was just paper valuations of property loans.

Not one person disputes that cuts are needed here, but Mr Osbourne, who is very keen to say he is vindicated, once again chooses only to hear his own mantra and no one else's. It is the speed and depth of the cut's that are / will cause a great deal of distress and damage to people and business in this country. Our 2nd World War indebtedness was proportionally just as large and it took from 1945 until the Callaghan Government to pay it off ie 25 years - Mr Osbourne wants to pay ours in 4 years so his party will be re-elected. What is forgotten in all this is the total debt owed by the Banks to the Taxpayer - how much of the total financial burden is not actually our liability, which would leave a lower Government debt figure for the taxpayer to repay through cuts, and thus lessen the severity or austerity being imposed on those who are blameless. Answers please, but only official figures, no true blue, red or orange party political spin. Thank you.

New headline on the DT website this pm "Spain insists it will not follow Portugal eith EU bailout".

Just who are these people trying to kid?

One of the things I object to most in this huge mess is that the political elite treat 'us' like the proles in 1984.

It's bleedin' obvious to all that default is an immediate necessity, followed by a scaling back of the European state into a successful Trade Federation a la EEC - that worked a treat despite containing different currencies. We trade very successfully with our Scandinavian neighbours although most of them are not in the Euro?

Well, by 'all' I perhaps should exclude those who prefer to worry about which glossy Beckham's on the cover of this month....

So we now have the position where possibly well run smaller banks and building societies are at a trading disadvantage to the larger banks because they are more likely to be bailed out ????

https://bbc.kongjiang.org/www.bbc.co.uk/news/business-12997792

this is surely ratings madness and the guarantee should be removed from all banks, its diversity we need not too big to fail....

@payguy
"The Hedge funds profit as they can take CDO positions before the bond strike that make them large profits."

Its not CDO positions they take, but CDS (Credit Default Swaps) but otherwise roughly correct.

So , to answer Peston's question "Who pays for Portugals mess?" should be the hedgefunds who caused the mess in the first place.

How can we make them pay, these true PIGS of the "Eurocrisis"?

Ban all CDS immediately! Does not cost anything - Is very effective!

So, hidden bond market support of €15bn via national banks and €20bn by rumoured ECB purchases. Possibly more from the reported sudden enthusiasm of the state pension fund for government debt.

It all makes the proposed bail-out figure of €80bn seem quite small, particularly in the context of a parliament that walked eyes-open into the crisis by rejecting its own austerity programme.

It would be interesting to know how much junk debt the ECB is capable of hoovering up before something breaks

jobsagoodin wrote:
and the rather obvious point you have appear to have missed Robert, namely that this episode is further vindication of the coalition's management of the economy and their approach to paying off the deficit. As Vince Cable pointed out this morning we have a higher deficit than Portugal but interest rates similar to France and Germany. Any chance of those idiots who went on the march against the cuts changing their minds I wonder ?
.
.
.
.
Yes you are right Portugal was forced to seek a bailout with a lower deficit than the UK’ but Portugal’s average debt maturity is 6.8 years, the UK’s is 14. Aside from the issue with the Europe and setting our own interest rates, the key difference is the maturity of our debt profile. Cable and Osborne won't talk about that though, they will just seek to justify that they are doctors treating a sick patient and not turning off the heart monitor.

@Robert Peston
"Who pays for Portugals mess?"

We do not even have to ban CDS

If we had an immediate law that everybody who has CDS, also buys bonds (as that is what we are told they should be creidt insurance for bonds) - bond prices would go up, yields (interest rates) for Portugal would go down - immediately.

So there is many good solutions to the problem - time to take a few up, Robert.

Otherwise it looks like you only want to hammer the bankers, complaining about their bonuses, but leave the hedgefunds untouched!

That cannot be the BBC policy, surely!

53 Climbline

"Our 2nd World War indebtedness was proportionally just as large and it took from 1945 until the Callaghan Government to pay it off ie 25 years - Mr Osbourne wants to pay ours in 4 years so his party will be re-elected."

There's a huge difference. The country became indebted during WW2 in it's efforts to survive against Nazi Germany. That was the "war debt". The current account deficit, which is very different from long term "National Debt" liabilities, was run up by committing public money to anyone who asked. Gordon Brown wrote books about "courage" but was pretty cowardly when it came to dealing with any of the structural problems that face the country. Instead he borrowed the cash, looked stern and talked about being "progressive"...as if consigning your children to a lifetime of debt servitude was somehow praiseworthy.

The war debt was run up in national emergency fighting genuine evil! The present deficit was incurred in granting generous public sector pensions, in bus passes to comfortably off pensioners, in propping up a hugely inefficient health service in the belief that to change might imply that the world wasn't still the same as 1948...and so much more besides In short, all the tricky things that New Labour ducked. Lastly, we propped up bankers who, in truth deserved to fall (albeit, that bit of the deficit is is exaggerated compared to all the stuff that people conveniently forget).

What perhaps is worst, is the way when, with electoral defeat staring them in the face from 18 months out, New Labour embarked on a spending spree in the calculated knowledge that any incoming government would have to make itself unpopular reversing everything. In national terms this was nothing short of errr..."defecating in the nest!".

That the same people who did this are hooting and gurning across the House of Commons, as if they weren't in any 100% culpable, is astonishing. Maybe they think we have forgotten. The whole "alternative approach" is just a mirage disguising the fact that they couldn't do much else and are just shamelessly tapping into the outrage of people who cannot count! The "shallower and slower" approach to debt just sounds like the alcoholic swearing that he'll kick the bottle...next week!

Far from wanting to be re-elected I think that George Osborne knows that the party that sees the country through these next few years will save the nation from bankruptcy, and will be thanked by being out of power for a generation! Hard choices!

Surely more will be required from the ESM and IMF & hence the UK to cover reduced contributions to the European Financial Stability Facility as Ireland Portugal & Greece probably not contributing plus reluctance from Finland & others?

Anyone else feel charity begins at home especially as more money for Pakistan's schools when own school building programmes etc cut?

Suggest we look to Maldives for a suitable political/economic performance model!

I think we should give Portugal a good will amount of £200 million. Maybe with slightly worse terms. We can't just ignore them.

@43 & @52 'Where has all the money gone'

circa 1970 top Directors pay averaged about 40 times average labour take home pay. Moving on to circa 2010, ratio is now over 1,000.

And just because it is generally topical. Today, 60% of those born in the bottom 10% of the population by wealth, never get out of it.

Re 62. That is apart from what we give them through the IMF fund and the Euro fund. I think with ireland we gave them money on three levels. Our own thing, IMF and EU funds. Even if IMF and the EU fund are helping Portugal we should also do a small £200 million payment to them. Show willing.

Its not just the bail out of Portugal that will cost money and credibility of the Euro zone, now the Bank of England is keeping rates static while the European bank is increasing its rates, yet the Euro is still sliding on the exchange rates against the Pound and the Dollar. This will cause jitters over the Euro and inflationary pressure in the UK. https://bit.ly/fYgRX8

"Arguably, the European Central Bank and Central Bank of Portugal have been lending to the Portuguese state - without admitting as much - with Portugal's banks acting as agent."

Robert Peston's article is a very helpful focus on the 'borrow-from-Peter-to-pay-Paul' nature of Portugal's finances under the Sócrates government. It is perhaps worrying that the chief architect of such schemes, Vítor Constâncio, head of Portugal's Central Bank from 2000-2009, was nominated as ECB Vice-President only a few months ago (he bailed out before the bail-out).

------
Any future post on Portugal and its repercussions for the Eurozone might also examine two items that are vital parts of the wider bailout picture for Portugal.

1) Portugal's perpetual beneficiary status for the EU Cohesion and EU Social Funds. For the period 2007-2013, this stands at over three-and-a-half billion euros per year for Cohesion, andat just over a billion euros per year for the EU Social Fund.

https://ec.europa.eu/regional_policy/sources/docgener/informat/country2009/pt_en.pdf
https://ec.europa.eu/esf/main.jsp?catId=394&langId=en

2) The acceleration in Portugal's recourse to (AAA-rated) European Investment Bank funding for SME lending and infrastructure projects: 10.568 billion since 2008. Compared to other EU countries, this figure is highly disproportionate to the size of the country's economy. Cheap loans can be dangerous. And such access to relatively cheap EIB funding has been a key facilitator in bankrolling one of the 'success stories' claimed by the Sócrates governement: renewables (as opposed to nuclear).

https://www.eib.org/projects/loans/regions/european-union/index.htm?start=2008&end=2011

--------------
These instruments alone (7 billion euros a year) represent around 4% of GDP and, more importantly, a sizeable part of those sectors of the economy that could be considered 'future-focused' investment (infrastructure, education/training, research, transport infrastructure).

Not surprisingly, with all the recent ECB cash injections (mini bailouts, only in drip-drip form) adding to these sources of funds, much of the more incisive editorial comment here in Lisbon has focused on how Portugal has built a 'dependency culture'.

Decision-makers and government employees have become experts in subsidy-chasing, rather than focused on developing realistic, sustainable ventures. So the country has proved highly successful in placing high profile Portuguese in influential positions -- Barroso at the European Commission, Constancio at the ECB, and so on. Portugal's decision-makers also know the rules: if they perform too well (that is, building wealth to 75% of the EU average, as has happened in Spain), they will lose out on free money (cohesion funds, social funds). And if they tailor major strategic projects to match 'in vogue' priorities for EIB funding (e.g. green energy) they can also access cheap loans for their wind and solar farms.

------------
Dependency is a difficult situation. Do you administer financial methadone to help any family members manage the addiction, at considerable cost? Or do you you exercise tough love, hoping that reduced funds and a taste of hardship will shock them back into better behaviour? What is certain is that there is a human side to such macroeconomic problems, and a lot of ordinary, hard-working people will suffer in Portugal, as they are suffering in Greece and Ireland.

#60. At 16:02pm 7th Apr 2011, Anglophone

"Far from wanting to be re-elected I think that George Osborne knows that the party that sees the country through these next few years will save the nation from bankruptcy, and will be thanked by being out of power for a generation! Hard choices!"

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

He's only talking about halving the annual deficit over four years, in the meantime the DEBT marches steadily onwards towards £1Trillion and beyond. We have always had annual deficits and we will always have annual deficits until the obsession with growth is eradicated. Tories and Labour alike have no intention of balancing the books, its catastrophic to their neoliberal ideology, were just going through deliberate economic shrinkage to make room for growth later. The trouble is the wealthy weather shrinkage better than the poor so the poor have an even greater appetite to consume when the shackles are released, the perfect storm.

Who pays ... ? The obvious answer is those who profited most from past mistakes. These mistakes were allowing banks to create excessive credit, instead of keeping money circulating by using taxation and benefits to transfer wealth from rich to poor, and then transferring private bank debts to the state.

Wealthy individuals and the companies they own, profited most from the resulting asset inflation and it was their wealth which was at risk when the banks were about to fail. They are also the people who can most easily pay. There is therefore both a moral and practical case for making them pay.

The problem is how to do this. Governments are of course very powerful, they could if necessary introduce strict controls to prevent tax avoidance, but are unlikely to do so, because generally speaking they are under the control of the wealthy.

The electorate has to pay more attention and look more closely at those campaigning for their votes, and ask whether they are really prepared to work for the general good or only for the interests of themselves and their wealthy friends and those that finance their political parties.

@Anglophone
"Our 2nd World War indebtedness was proportionally just as large and it took from 1945 until the Callaghan Government to pay it off ie 25 years -"

It took until 2006, I think, to pay off the debt to the US, and it was much larger - in fact 3 times as large, as percentage of GDP

Whether it is Portugal or the UK, 80% debt is not unmanageable.

We would notice that straight away, if we were to abolish Credit Default Swaps, which allow hedgefunds to make large profits betting on the misery of other countries, and undoutedly influencing public opinion through bribes, to deter investors.

As soon as CDS are abolished, the "Eurocrisis" would calm down!

Let ban them tomorrow!

60 Anglophone: Thanks for your response. Very much like the alcholic you parody in your response to my posting, my handle is Cimbeline not 'Climbline'. However I fail to see your distinction between Debt incurred by '..the fight against evil..' and the fight against the evil banks, to have them repay their debt and our money back to the treasury. Debt is debt no matter how it is incurred and your argument is therefore Blue Party Political and displays a similar bias to the favour of Mr Osbourne's ideology. As the point here (in my opinion) is thus not based upon facts and figures as I stated earlier, I will leave it to someone else to argue politics with you on this occasion.

Oh dear, what a mess... how long will it be before it all goes pop... cos it's gonna.
So few affecting the lives of so many... Absolutely appauling

matt_us

You keep talking about Credit Default Swops (CDSs) as though their existence is the only factor threatening the PIIGS.

However, the fact remains that all the countries that have gone to the ECB for help have done so because they were running out of money and could only borrow money at penal rates of interest. That situation would have arisen with or without the market for CDSs.

What is perhaps surprising is that that there was a market for CDSs in the first place as the likelihood that Portugal would be forced to ask for help was 100% - it was only a matter of time. So who was betting that Portugal wouldn't need help?

I remember that speculators were betting against sterling before we were forced out of the ERM and when that happened, they made a killing.

However forcing us out of the ERM, and making us reverse the stupid decsion to enter the ERM in the first place, did the UK a big favour. The economy started to grow again after that point, helped by a devaluation of sterling against the DM and lower interest rates.

72. At 17:25pm 7th Apr 2011, busby2 wrote:
...forcing us out of the ERM, and making us reverse the stupid decsion to enter the ERM in the first place, did the UK a big favour. The economy started to grow again after that point, helped by a devaluation of sterling against the DM and lower interest rates.
------------------------------------------------------------

It is too soon to know what the result is! It takes decades to know what the true outcomes are. Perhaps the speculators that made a killing are still able to run the show.

What happens over a few parliaments cannot be placed in isolation as in the current politicians control.

Fascinating, all this interconnectedness of banks, arising from them lending each other money, which is then lent on.

It really drives home the point that, while the bankers may believe they really are diversifying and reducing their risk, in fact all they are doing is making things more opaque and making it less easy to tell where the risk is. In other words, they are deluded and just pretending that risk has been reduced.

A system which mitigates against systemic risk, or rather.... achieves the ideal solution of a sensible balance between systemic risk and specific risk neither totally connecting all banks, nor totally insulating them individually - perhaps should be based on controlling banks lending to each other.

Either by forcing them to automatically write down such loans by certain amounts, or by taxing them (a la Volcker rule).

This interconnectedness of banks via this interbank lending is clearly just an example on a rather larger scale of the 'death spirals' achieved at Lloyds during their famous eighties implosion.

70 Climbline

I didn't realise that the entire deficit was created fighting the "evil banks"...how shortsighted of me...and I'm the one supposed to be being political. As outlined in these threads before, if every liability faced by UK plc was translated into a household debt it would be an eye-watering £120,000. The amount rescuing banks, which we should also get back, is about £2,000. The bankers are loathsome but blaming them solely for a our current predicament is a political canard!

Debt may be debt to you, but to me debt incurred fighting Hitler simply is not the same as debt incurred living the easy life. Britain has a structural deficit problem, although those who believe that it is a harmless fact of life that has always been there are sorely deluded. The very fact that Britain can borrow at all is down to the hard work and relative thrift of previous generations. At present we are simply drawing down our historical creditworthiness, at an astonishing rate, selfish and fat and living well beyond our means, using everything up and consigning our children to the economic junkyard.

It's trite to see these things as a blue/red divide as if this was some arcane argument about philosophy. I don't really do dogma, or politics really, but my simple observation is that the red team can be relied upon to try to do what's right! The blue team tend to be more about doing what's actually possible given human nature! There's a big difference. It's why the Left always seems to be staffed by people who haven't matured in their world view or understanding since sixth form!

@2. Hawkeye_Pierce wrote:

"Default is the most natural thing in a capitalist system. It flushes out mis-allocated funds. It punishes both the borrower AND the lender for their folly".

Er, so why isn't that healthy capitalist medicine being administered to the banks?

Could it be - because we don't in fact have a capitalist system? Instead we have socialised losses and privatised gains.

#53 callaghan was 1975-79 thats 30 years for a start and the US as mention only resently. One could argue that level of debt which left this country almost bankrupt is also the root of many problems today as it caused a total lack of investement etc in UK industry after the war. It was not unlike 1960 that you could import US guitars into the UK.

yet Germany with the marshall plans and Japan to had massive investment which is why they now have the industrial musle that we do not,

Maybe we should be asking the Axis powers to at long last to compenstae the UK for the war damage etc

#77 - Isn't that the thinking that started the second world war in the first place?

I think it is great that Britain is bailing out the members of the EU who have financial difficulties. My question is who will bail out the UK ? Also would these countries not have problems if they were not part of the EU and were free to set interest rates and their exchange rate could vary. As a UK taxpayer I am getting a little tired of my money which I need, being wasted.

Evening Robert,
who pays for Portugals mess? How about Greece's mess or Irelands mess?
The point here is that they all had to be bailled out because they could no longer afford to borrow in the commercial money markets at a reasonable rate! The money that all of these countries were trying to borrow was to roll-over existing debt!
When bailout conditions are imposed, none of these countries can afford to repay their debts--EVER.
This situation hasn't just happened in the last few months but has been ongoing for years and years but nothing was said because the creditors wanted their money back , plus interest.
So now we have it. The rich (relatively) countries will lend you even more money so that you can repay us what you owe! Does anyone else think that this is the pure fantasy of delusion?
I believe that Chinas rate rise plus ECB rate rise plus USA continuing QE (with QE3 a certainty) is the start of complete financial collapse in the developed economies. I often wonder how much of these loans are to enable countries to pay off their debts for armaments that they have purchased.
Half of the ECB bail out fund has now been used and Spain would easily take the rest. Then what?
All the banks in Europe are trying to sell bonds to raise funds to meet Basle III requirements some of them will be unsuccessful. Then what? Close banks down?
This will prove to be worse than the crash of 2007-8 and we still haven't solved the too big to fail problem. Indeed the banks have even larger liabilities than they did in 2007. When confidence collapses again and creditors want their money back there will be no more money left to bail them out.
Make no mistake, Robert, this is a financial war between USA, China and the United States of Europe. A war that no one can possibly win. Zero interest rate policies have caused this crisis by providing unlimited liquidity at no cost. All of the funds chasing greater than 8% return have poured money into developing economies, commodities and the stock markets. This inflation of money will end in tears eventually. Who will be the first to blink?

Which European countries are 'too big to fail'?

Who pays for Portugal's mess?

Simple. The Portuguese WE are under no illusion that somehow, in the future WE will have to pay …with interest.

You know, it is not compulsory to make every single paragraph consist of just one sentence.

Really.

True.

84

No.

But it makes it easier to read.

Thanks.


Anglophone, thanks for the best posts that I have read on this blog.

I think that I have just spotted the biggest financial error in recorded history. Some how and don't ask me why, but where it has been entered as bn that is not an internationally recognised abbreviation for billion what was really ment was bc as that was the peak times of the Roman Emipre and decades before that great film Get Carter that paved the way forward the new European economy that is in dyer need of a Great World Bank bail out. I would like to be the first to express an interest in this screenplay as it has a lot more merit than Wall Street.

"81. At 19:19pm 7th Apr 2011, sandy winder wrote:
Which European countries are 'too big to fail'?"

Which European countries are too big to save??

has anyone else noticed how the bank debts have now been moved from the banks to the countires (the taxpayers), and now from the countries to the ECB (still the taxpayers)!

so the countries at the core, Germany, France etc, will see their borrowing costs rise.

The UK is in no good position either.

75. At 18:26pm 7th Apr 2011, Anglophone wrote:
70 Climbline

I didn't realise that the entire deficit was created fighting the "evil banks"...how shortsighted of me...and I'm the one supposed to be being political. As outlined in these threads before, if every liability faced by UK plc was translated into a household debt it would be an eye-watering £120,000. The amount rescuing banks, which we should also get back, is about £2,000. The bankers are loathsome but blaming them solely for a our current predicament is a political canard!

+++++++++++++++++++++++++++++++++++++++++++++++++++

I am a deficit denier and proud of it.
30% of the debt is fake... We borrowed it from the Bank of England which we supposedly own. The Bank of England can also buy up the rest of our debt if they wanted but because that would destroy all the myths we hold about economics, it wont happen.. To many bankers will turn back into frogs.

The quantity of debt that the BoE is able to buy and therewith cancel is determinable and primarily based on population size, capacity to produce and monetary efficiency. Speculation reduces the efficiency of a currency and therewith destroys the wealth of nation. Pumping money into an inefficient monetary system causes distortions such as inflation and higher levels of social ineqality.

Time to step away from the usual BS

#51:
Yes your English really is "corrput".

. At 13:04pm 7th Apr 2011, a_sensible_comment wrote:
And what is our opposition's solution to all of this? Borrow and spend more!!!!

You really couldn't make it up

"Yes, they all love Keynes now, pity they forgot to follow him and run a budget surplus during the time we actually had a growing economy. No, they preferred to borrow and spend then too. No talk of Keynes whatsoever. Hmmmm, maybe all they know is borrow, tax and spend, a bit like Portugal and Greece? Wait a minute, there's a theme emerging here......get a socialist Government, get a financial crisis? Who would have thought it?"

When the economic crisis struck in 2008,both Greece and Ireland had right wing prime ministers.Mr.Cowen in Ireland,Mr.Karamanlis in Greece,only Mr Socrates is a socialist and was last to come round with his begging bowl.

You have a common misunderstanding of Keynesian economics:Three points.when an economic downturn occurs the first effect is on tax revenues, even if you were in surplus prior to the recession..Second,why should government`s postpone their spending programmes so taxpayers can put money aside to bail out private capital when it`s in trouble,Third, the duration and intensity of cycles are unpredictable.The National Bureau of economic research shows that since 1929 they vary from 6 to 44 months in length.If you can predict their onset you are either a charlatan or a Nobel laureate.

According to the IFS,the British economy pre recession had a deficit similar to that inherited in 1997,the debt was lower.The money went to pay for underfunded public services to bring them to European levels.

No objection to partisanship but it should be intelligent and informed.

I was going to post this on Paul Masons George Orwell award nominated Newsnight blog...which seems to be shut down at the moment (he has been quite controversial recently).

So i guess i will have to make do with here.



You mention the ‘disconnect’ between the North and ‘peripheral’ Europe.

I disagree with this.

Amongst the peoples of Europe there is little disconnect if any and what most people want is entirely achievable and sustainable and all within their cultural context if they so wish, the only thing that would need to be controlled would be population across cultural barriers.

The disconnect is between the EU leaders, the leadership apparatus, connections to big business and ‘the people’.

The scale of that disconnect is hard to reconcile with the term ‘democracy’ and is increasingly dangerous.

The incumbents could be ‘voted out’ eventually via democracy as austerity bites, but that will almost certainly be too late in the current climate.

The current democratic process moves too slowly to keep up with events in a world where billions can be made by locating your office at a fibre optic junction in the middle of the ocean to take advantage of the speed of light between global financial hubs, enabling them to ‘cream off’ a profit from price differences between those two centres.

https://bbc.kongjiang.org/www.bbc.co.uk/news/science-environment-12827752

In contrast, the best timescale the people can hope for in order to improve their lives via the political process is, realistically, two parliamentary terms …8 years… at least.

Eight years to vote someone in with sufficient clout to ban valueless profiteering when those who rape the system we all depend on can change their lives in a fraction of a fraction of a second by manipulating numbers on an island somewhere in the Atlantic (potentially) with no come back...

Some days 8 months looks optimistic in terms of how long we have, we may have 8 quarters if we are lucky before the people whom support this madness bring the whole house down upon all of us.

I feel the need for a long walk and deep breaths coming along….again… just put my two young daughters to bed. I look into their happy eyes and feel utterly ashamed of what our generation has done to their future.

ENOUGH.

75. At 18:26pm 7th Apr 2011, Anglophone wrote:
70 Climbline

"I didn't realise that the entire deficit was created fighting the "evil banks"...how shortsighted of me...and I'm the one supposed to be being political. As outlined in these threads before, if every liability faced by UK plc was translated into a household debt it would be an eye-watering £120,000. The amount rescuing banks, which we should also get back, is about £2,000. The bankers are loathsome but blaming them solely for a our current predicament is a political canard!"

Don`t be so dismissive.The pre crisis deficit at around 2.7-2.8% of GDP was the same as that inherited from the conservatives,the debt was lower.

The rocketing of the deficit was a consequence of the collapse in private capital across the world.By 2009-10 the deficit had reached 12% of GDP. The money didn`t just go to the banks,tax revenues dived which is usually the case at the onset of depressions.

Weak growth resumed in the final quarter of 2009,got stronger then fell back in the last two quarters.The government used fiscal and monetary measures which ameliorated rthe worst effects of the crisis,and stabilized employment and home repossessions compared with 1070-1984 and 1989-1983.

Neither party has a monopoly of practical wisdom in regard to the economy.Mr.Osborne`s rapid cost cutting is yet to be tested,it`s far from a done deal if Ireland,Greece and Portugal a guide.

87 Supersage64

Interesting...I suppose that as "money" in a fiat currency is largely illusory, the BoE could indeed suddenly declare that it doesn't exist and declare the nation's deficit null and void??? To paraphrase Peter Pan..."money is like fairies...if you don't believe in them they die!"

True enough, UK plc does hold many shares in major banks that will, hopefully, in time be sold off at a profit to the taxpayer. That may be the "fake 30% of the deficit" that you're talking about. The remaining 70% however is still the structural deficit, that all the semantic hogwash and convoluted economic trickery, can't magic away.

The BoE can only raise new money by selling gilts, in the hope that there will still be people left who want to buy the paper. Those buyers absolutely do want their money back sooner or later and if we can't repay it they won't lend us any more. The endgame is as plain as the slow-motion car-wreck of the euro! To say that is a fake suggests that the BS around here is largely going on between your ears!

63. At 16:24pm 7th Apr 2011, Seer wrote:
@43 & @52 'Where has all the money gone'

"circa 1970 top Directors pay averaged about 40 times average labour take home pay. Moving on to circa 2010, ratio is now over 1,000.

And just because it is generally topical. Today, 60% of those born in the bottom 10% of the population by wealth, never get out of it."

Real gut issues here.We have become much more unequal.In 1980,22% of national income went to capital,it has now risen to 27%.Little wonder Mr.Cameron frantically tries to hawk his big society idea round the country.There is a paradox however,we have become more unequal economically,more egalitarian culturally.The changed status of women and minorities is evidence.

But economic crisis sharpens perceptions of inequality,it polarizes.Effectively the Lib-Dems have become a right wng party,Osborne`s economic policy is Thatcher Mk2.

As Marx wrote: "History repeats itself,the first time as tragedy,the second as farce.

@busby2
"However, the fact remains that all the countries that have gone to the ECB for help have done so because they were running out of money and could only borrow money at penal rates of interest. That situation would have arisen with or without the market for CDSs."

Of course other things matter, too, speculation with CDS makes it worse. Perhaps 10 times worse.

There is no reason, why Portugal, which is basically not much worse than the UK, should be excluded from credit markets, or pay interest rates 2 or 3 times as hight as Britain. Or why it should have a much worse credit rating. That is the problem.

Unless somebody could make money out of it, it would not happen. You can only make money through CDS from a worsening situation - that is why they need to be banned. Otherwise it will be in the interests of powerful 'masters of the universe' exactly the same ones which speculated against the Pound, to try that trick again with other countries.

92. At 22:25pm 7th Apr 2011, Anglophone wrote:
87 Supersage64

Interesting...I suppose that as "money" in a fiat currency is largely illusory, the BoE could indeed suddenly declare that it doesn't exist and declare the nation's deficit null and void??? To paraphrase Peter Pan..."money is like fairies...if you don't believe in them they die!"
+++++++++++++++++++++++++++++++++++++++++
We seem to be getting onto the same page... but for a few things.. The BoE does not sell guilts, it buys them from HM treasury. Its a bit confusing in that HM treasury owns the BoE... But the most important bit of confusion in respect of Finance speak is the term "Buying Guilts"... it means lending money similar to buying shares. Both are methods of funding an enterprise. The enterprise can either borrow or sell shares

In a capitalist system defaults are expected at all levels of borrowers but governments are more skilled and should be more responsible and adjudicating questionable huge projects to private companies is irresponsible. At the end of every day those responsible for the overspending have food on the table and those that had nothing to do with it have a salary cut. The world is in desperate need of a new breed of politicians.

#15 >>The export of jobs to china and India too have not helped.

Exactly what jobs have Portugal exported to China and India ?? Holiday resorts ?? The making of Fine Old Port wines ??

Who pays for Portugal's mess?

Well who ever pays for it, they will now have to pay an extra .25%

#27>>The rating agencies (who suddenly seem to have grown a pair when it comes to rating countries)....

I beg to differ, sir !! If they have truly "grown a pair" as you have stated, then the first country they would downgrade is the US. The US has debts that it cannot possible repay !! Well past US$15 trillion and climbing (skyrocketing ??) !! And the cost of their military involvement in North Africa is not helping their debts either !!

Why don't Greece, Ireland, Portugal and Spain get together to negoiate the terms on which they will repay their sovereign debt.