Portugal´s rescue

Our neighbour are on  the verge of being rescued. Socrates, resigned PM , has call for it. (http://www.ft.com/cms/s/0/e2916ace-607e-11e0-9fcb-00144feab49a.html#axzz1IZzec400)

The rescue of Greece and Ireland have not improved the performance of these countries nor  others in difficulties. Greece must now pay a 16% for its  10 years treasury bonds.

The rescues have been  a flawed way to protect the assets of euro banks, loaded with sovereign bonds. But this attitude has impeached to remove the bad assets of european banks, which in turn has delayed the last solution of  bank problem.

Three years ago, the solution would have been to emerge bad assets and some hair cut to the creditors. Now, the hair cut will  be much more hard, in spite of which the rescue only translate the problem to the future, and volume.

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Portugal´s bail out; Spain´s, the next. It´s the politics, stupid

Portugal has fallen in a vacuüm: The government has dismissed, admitting he was incapable of negotiating an intervention of the EFSF – the European Facility that has rescued Ireland & Greece.

“Until new elections, this government has neither the legitimacy nor the power to negotiate any agreement at all,” said Fernando Teixeira do Santos, finance minister.

That means the government has ruled out the possibility of Portugal asking for a bail-out for almost three months, in spite of doubts that it will be able to meet €9.3bn ($13.2bn) in bond repayments that fall due in April and June. (FT today)

The chain of fatal events in Portugal could be replied easily in Spain. The main problem is not economic, but of government capacity. In may, there will be regional election in Spain, probably winded by the opposition; the result of which will be a more flawed government, more unveiled regional debt, awful financial conditions, and a general lack of decision of both party to face the real problems.

The main problem for Spain is the recapitalisation of flawed banks. That could be done with some difficulties, but probably it will be well-assumed by the market only  if  government has sufficient will. Spain has not so high public debt, and to put € 40 billion will not mean a huge problem. All in all, the total debt rise from 60% to 80% of GDP, more or less the media of euro zone.

But nor te government party, neither the opposition, has the intention to joint its forces to do it. Each one is not capable of facing it; but the huge distance between them, and the good perspective of the opposition to wind election next year, has awoke the wild impiety of liquidating entirely the  socialist (a reasonable target in normal times, but not today).

The probable result of all that will be a profound wear of socialist party, and a no less haunting possibility of a right party managing a  very unpleasant and useless bail out, which perversity can be observed in graph: The countries rescued has not been capable to get some credibility.

Spain downgraded

Moody´s has downgraded  the debt of  Spain, to Aa2. The main reason is that Moody´s estimate the cost of restructuring saving banks in 120 mm € (in extreme cases), not the official 20 mm.

The effect in the markets has been instantaneous, as it can see in the graph, which plot the 10 years yield of Portugal´s bond. So, we return to a pre-crisis level of concern. The ECB has been forced  to intervene buying bonds to sustain its prices (see the up and down in the graph). bad news for Spain are worse news to Portugal. A very bad sign of sensibility in the markets.

In any case, Spanish bonds have fallen also, recovering their risk premia of crisis times. Meanwhile, “Spain shoot the messenger” (ALPAHVILLE, FT)

RTRS-SPAIN’S TREASURY SAYS SURPRISED BY MOODY’S DOWNGRADE BEFORE BANK OF SPAIN BANK CAPITALISATION DATA.

RTRS-SPAIN TREASURY SAYS MOODY’S OVERLOOKED PENSION REFORM SOCIAL PACT THAT GUARANTEES PUBLIC FINANCE STABILITY.

RTRS-SPAIN TREASURY SAYS MOODY’S OVERLOOKED 2010 DEFICIT REDUCTION PERFORMANCE.

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