Portugal requests EU bailout

[Murazor]

Timber!

Portugal bail-out set to be discussed by EU

Mr Socrates stood down as prime minister after failing to pass austerity measures Continue reading the main story

Portugal's bail-out request is expected to be discussed when EU finance ministers meet later in Budapest.

European Central Bank head Jean-Claude Trichet is also likely to mention Portugal at his news conference after the latest eurozone rate decision.

The ECB is expected to raise interest rates, which could create problems for debt-ridden countries.

Portugal's caretaker Prime Minister Jose Socrates said on Wednesday he had asked the EU for financial assistance.

'National interest'

Portugal follows Greece and the Irish Republic in seeking a bail-out.

However, Spain was quick to say it would not be following these countries in seeking assistance.

Analysts have expressed concerns about Spain as it has EU's highest unemployment rate and is struggling to deal with a banking crisis and the collapse of its property boom.

But Spain's Economy Minister Elena Salgado said that financial markets were perfectly capable of distinguishing between the situations in Portugal and Spain.

In an interview on the national radio station SER, she said that the risk of contagion was "absolutely ruled out", and added it was clear that Spain's economy was much more competitive than Portugal's.

In Portugal, Mr Socrates put off a bail-out request as long as he could, having stepped down as prime minister after failing to pass austerity measures.

"I always said asking for foreign aid would be the final way to go but we have reached the moment," he said.

"Above all, it's in the national interest."

First Greece, then Ireland, now Portugal. But unlike the previous two bail-outs, this one does not seem to have provoked panic - either in the corridors of power here, nor on the markets.

The EU's top economic official Olli Rehn called the Portugese decision a "responsible move". The President of the European Commission Jose Manuel Barroso - himself Portuguese - said the request would be processed as quickly as possible.

A team could be dispatched to Portugal in the coming days.

EU finance ministers hold a scheduled meeting in Hungary this week. Portugal will be top of the agenda.

The European Commission and the European Central Bank are both expected to be involved in the bail-out funding. The International Monetary Fund says it stands ready to help as well.
European Commission President Jose Manuel Barroso said in a statement that Portugal's request would be processed "in the swiftest possible manner, according to the rules applicable".

He also reaffirmed his "confidence in Portugal's capacity to overcome the present difficulties, with the solidarity of its partners".

Mr Socrates did not say how much aid Portugal would ask for. Negotiations will now be under way and the BBC's business editor Robert Peston said rescue loans could amount to as much as 80bn euros ($115bn; £70bn).

On Wednesday, the government raised about 1bn euros after tapping the financial markets in order to repay loans, but will have to pay a higher interest rate to lenders.

Portugal's cost of borrowing has risen sharply since the minority socialist government resigned last month after its proposed tougher austerity measures were defeated in parliament.

Since then several rating agencies have downgraded the country's debt.

Elections are due to take place on 5 June.

Low growth

Portugal's problems have been different from those of the other countries that have needed bailing out.

Low economic growth and high wages have meant that the country has struggled to raise enough money through taxation to pay for government spending.

When the banking crisis came, it found itself dealing with the same rising costs of debt that other countries had to deal with, and has finally had to concede that it cannot raise the money it needs through financial markets.

The UK has said that it will not be extending the sort of bilateral loans it offered to the Irish Republic, because it does not have such a close relationship.

But the UK is committed to contribute to one of the EU's temporary bail-out funds as well as the International Monetary Fund's scheme, either of which could be used to assist Portugal.

It will not be clear how much the UK will have to contribute until the details of the bail-out have been agreed.

The Portuguese seem to have been strong-armed into this request by their banks who have apparently stated that they would cease to buy public debt if they didn't get bailed out. That said, excluding the small possibility of the markets going for Belgium next (that government crisis isn't doing them any favours and they are a small enough target to look tempting), it is Spain's turn to go down.

[J]

Someone may have to eat his hat soon.

It was only a matter of time, interest rates on Portugese government bonds were floating in the 8-10% range for everything between 2 to 10 years, once they had to start rolling over their existing debts in quantity it was all over. The only question now is how much interest they're charged for the bailout and how many bailouts will be written before the money runs out.

[Psychic_Sandwich]

Well, isn't Portugal expected to be the last 'domino' before either Spain or Italy? Those are too big to bail out, as I understand it, so one way or another, this will be the last bailout.

[K. A. Pital]

Well, isn't Portugal expected to be the last 'domino' before either Spain or Italy? Those are too big to bail out, as I understand it, so one way or another, this will be the last bailout.

There's nothing too big to bail out. Remember, it's bailouts or WE ARE DOOMED. Save capitalism, and all that. No price is too high to save precious banks, no price too high to bailout public sector after it takes on private debt. No politician too honest, when they first claim they'll never need any bailouts, which is a clear indication that in a few weeks or months at best they'll come crying for money.

The First World is high on bailouts. Like a drug once tried by junkies who cannot stop until it kills them.

[Murazor]

There's nothing too big to bail out. Remember, it's bailouts or WE ARE DOOMED. Save capitalism, and all that.

Though events might yet prove me a fool, I am fairly sure that he is right.

Spain is in teh shit in ways that defy conventional description. Germany -which is about the only nation that really counts in regards to providing money for the bailouts- would have to swallow a pill worse than the RDA reintegration to keep Spain away from a debt default.

[Thanas]

RDA?

And looking at this from a political perspective, I doubt the situation is that unwelcome for Germany. Sure, we pay a lot, but "he who has his thumb on the purse has the power", as Bismarck decreed. Basically, every bailout is further ensuring German hegemony in Europe, especially with the very stringent oversight and lack of sovereignty on part of the bailout nations. Basically, the bailouts ensure that as long as the other nations are indebted to Germany, that Germany and Germany alone is pulling the shots in Europe. (Some might argue it did already beforehand, given how France was recently forced to go along with whatever Germany wanted while it got its own political ideas slashed by Merkel, but this is just that much more). This is especially crucial in states like Ireland and Greece, who have previously been a hindrance to German plans. Bailouts ensure that they will fall in line, nevermind that Germany might even make a profit out of this.

And considering that the recent reports all suggested the German economy will still grow and unemployment will plummet even further to new record lows, the cash has not run out yet. Not by a long shot.

[LaCroix]

Any bets on how long it will take before the first theories arise that all this was actually planned long ago by the Germans?

[Murazor]

RDA?

That is the Spanish contraction for Republica Democratica Alemana, known in the Anglosphere as the German Democratic Republic or East Germany. Sorry for the incorrect terminology.

[Tribun]

RDA?

That is the Spanish contraction for Republica Democratica Alemana, known in the Anglosphere as the German Democratic Republic or East Germany. Sorry for the incorrect terminology.

To a German, "DDR" is the correct term. We almost never hear the English one and therefore are not used to it.

[K. A. Pital]

Any bets on how long it will take before the first theories arise that all this was actually planned long ago by the Germans?

Germans "planned"? If by Germans you mean German bankers and capitalists, who own shitloads of capital in the indebted nations and conducted huge acquisitions there, as well as in Eastern European nations, although the latter were also "blessed" by the involvement of North-European bankers (e.g. the Baltic nations that are now seeing record unemployment and which almost defaulted during the crisis, they had a huge North-European penetration in their assets, forgive me speaking like Shroom).

In that way, you might as well call it "planned". The reality is, however, that crises lead to concentration of capital, and that is beneficial for larger and richer nations, because larger and richer nations have larger and richer companies, who devour their less fortunate brethren while the crisis lasts. Enormous amounts of acquisitions and mergers in the crisis years only underscore my point. It is a natural tendency.

[Siege]

At least the Germans have their shit in order, economically speaking. Frankly if these nations that are chronically unable to get their finances straightened out pay for the hole in their hand by having a bunch of humorless German bankers in charge of their purse for a while, then tough on them and may it teach 'em not to be spendthrifts in the future.

[J]

And looking at this from a political perspective, I doubt the situation is that unwelcome for Germany. Sure, we pay a lot, but "he who has his thumb on the purse has the power", as Bismarck decreed. Basically, every bailout is further ensuring German hegemony in Europe, especially with the very stringent oversight and lack of sovereignty on part of the bailout nations. Basically, the bailouts ensure that as long as the other nations are indebted to Germany, that Germany and Germany alone is pulling the shots in Europe. (Some might argue it did already beforehand, given how France was recently forced to go along with whatever Germany wanted while it got its own political ideas slashed by Merkel, but this is just that much more). This is especially crucial in states like Ireland and Greece, who have previously been a hindrance to German plans. Bailouts ensure that they will fall in line, nevermind that Germany might even make a profit out of this.

It works until it doesn't, suppose the bailout nations decide to default on the debts they owe to Germany, then what? For the time being you guys enjoy an increased cashflow as the borrower nations repay their loans to you, but if and when those nations are no longer willing or able to continue paying their debts you'll have a bit of a problem. You'd better hope those loans are well secured with some sort of collateral or you'll be left holding a mostly empty bag.

[Zed]

And looking at this from a political perspective, I doubt the situation is that unwelcome for Germany. Sure, we pay a lot, but "he who has his thumb on the purse has the power", as Bismarck decreed. Basically, every bailout is further ensuring German hegemony in Europe, especially with the very stringent oversight and lack of sovereignty on part of the bailout nations. Basically, the bailouts ensure that as long as the other nations are indebted to Germany, that Germany and Germany alone is pulling the shots in Europe. (Some might argue it did already beforehand, given how France was recently forced to go along with whatever Germany wanted while it got its own political ideas slashed by Merkel, but this is just that much more). This is especially crucial in states like Ireland and Greece, who have previously been a hindrance to German plans. Bailouts ensure that they will fall in line, nevermind that Germany might even make a profit out of this.

It works until it doesn't, suppose the bailout nations decide to default on the debts they owe to Germany, then what? For the time being you guys enjoy an increased cashflow as the borrower nations repay their loans to you, but if and when those nations are no longer willing or able to continue paying their debts you'll have a bit of a problem. You'd better hope those loans are well secured with some sort of collateral or you'll be left holding a mostly empty bag.

We have a union now, you know. Nations sort of get into a lot bigger trouble themselves if they're unwilling (rather than unable) to pay their dues.

[Thanas]

It works until it doesn't, suppose the bailout nations decide to default on the debts they owe to Germany, then what? For the time being you guys enjoy an increased cashflow as the borrower nations repay their loans to you, but if and when those nations are no longer willing or able to continue paying their debts you'll have a bit of a problem. You'd better hope those loans are well secured with some sort of collateral or you'll be left holding a mostly empty bag.

Meh. If necessary, we'll just extend the repayment over several decades. It is not as if this practice has not been used before.

[Steel]

Meh. If necessary, we'll just extend the repayment over several decades. It is not as if this practice has not been used before.

Yeah, but Germany kinda didn't pay it back either time

[Pelranius]

Meh. If necessary, we'll just extend the repayment over several decades. It is not as if this practice has not been used before.

Yeah, but Germany kinda didn't pay it back either time

They actually just finished paying back the last of the interest on the loans they took out to pay the stuff for WWI in last October, I think it was.

[Steel]

They actually just finished paying back the last of the interest on the loans they took out to pay the stuff for WWI in last October, I think it was.

No, they finished repaying a small portion of the interest on a small portion of the debt, the rest was called off. The actual principal amount of debt was never really paid off.

[Thanas]

Meh. If necessary, we'll just extend the repayment over several decades. It is not as if this practice has not been used before.

Yeah, but Germany kinda didn't pay it back either time

Eh? If you are talking about WWII, I do not think there were an massive stuff, and I doubt you can argue with a straight face that Versailles was in any way something that could be considered acceptable for Germany.

OTOH, the Marshall fund was fully paid back.

[Narkis]

Any bets on how long it will take before the first theories arise that all this was actually planned long ago by the Germans?

There are already such theories around here. Supposedly the whole thing has been orchestrated by the German government in tandem with their banks and other companies in order to either: A) achieve dominance over Europe through lending vast sums of money, since they failed to do it 70 years ago through force of arms, or B) buyout our prime beachfront property along with our ancient stones at killer rates. And those aren't even the least coherent ones.

[Big Orange]

Iceland didn't need the rushed through, taken for granted, one size fits all Euro currency to get itself into a similar bind to Ireland's.

Speaking of which:

Irish credit rating cut hits value of euro
• Credit ratings agency Moody's warns Ireland may need to take further austerity measures
• IMF and European Commission applaud Dublin's progress

The euro dropped against the dollar after credit ratings agency Moody's delivered another negative verdict on Ireland on Friday morning.

Moody's cut Ireland's rating by two notches to Baa3 – one notch above junk status – and left the outlook negative. The agency said the country might need to take further austerity measures to meet its fiscal goals and that its financial position could suffer because of higher European Central Bank interest rates.

"Should the intended fiscal consolidation goals not be met, a further rating downgrade would likely follow," Moody's warned. "Moreover, a further deterioration in the country's economic outlook would also exert downward pressure on the rating."

The euro fell to a session low against the dollar in early trading, down 0.2% to $1.4450. It recovered somewhat later but was still well below the 15-month high of $1.4521 the currency hit earlier in the week.

Gary Jenkins, head of fixed income research at Evolution Securities, described the new rating as "possibly the most uncomfortable of places to be on the ratings scale – one false step from junk".

However, Dublin's austerity programme got the thumbs up on Friday afternoon from the International Monetary Fund and the European Commission in their first quarterly reviews of its progress.

In a joint statement, which was also endorsed by the European Central Bank, the backers of Ireland's bailout package said its turnaround plans were "on track, but challenges remain and steadfast policy implementation will be key".

"Ireland is making good progress in overcoming the worst economic crisis in its recent history. The implementation of the programme has been determined, despite the period of political change and an uncertain external environment," the statement said.

This verdict will come as a relief in Dublin, where weaker-than-expected tax revenues had raised the fear that its creditors could demand even deeper cuts.

Moody's move, which took its rating to two notches below the ratings of Fitch and Standard & Poor's, came amid fresh worries over a Greek debt default. Markets were eagerly awaiting news on Greece's privatisation plans and austerity measures.

The government said it planned to sell stakes in state-owned companies including power utility PPC, telecom operator OTE and ATEbank to raise €50bn from privatisations by 2015. It will also sell its entire 34% stake in OPAP, Europe's biggest listed gambling firm. It vowed to make savings of €23bn between 2012 and 2015, or about 10% of GDP, to meet deficit targets set by the EU and IMF.

Greek and Irish bond yields rose again after the Greek government left much of the detail of its new fiscal plans to be spelled out after Easter. Spreads between Greek 10-year bonds and German bunds remained above 1,000 basis points.


"The fact that Moody's downgraded Ireland is certainly not helpful for sentiment," Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, told Reuters. "It once again shows that the troubles facing the eurozone are not completely behind us and may resurface at any given point. Over the next couple of months, we will probably be looking at a weaker and more nervous market."

In contrast, Fitch affirmed its rating at BBB+, took Ireland off its negative watch and assigned a negative outlook after release of the Irish banking stress tests, which the agency described as credible, noting that the economy appeared to be nearing stabilisation. S&P rates Ireland BBB+ with a stable outlook.

The Guardian

[Thanas]

Moody's is just playing a very criminal game here.

[J]

Moody's is just playing a very criminal game here.

Why do you think so?

[Thanas]

How about the fact that these ratings, as evidenced by the Housing Crisis, are essentially "What Moody's feels like" and given the moves by the other rating agencies, it feels like Moody's just once more following what profits itself the most.

[J]

I agree that nearly anything given out by the Big 3 ratings companies are highly suspect to say the least.
However, if we look at Ireland's economic & financial situation as a whole, can a plausible argument be made that their bonds shouldn't be at or near junk status at this point in time?

[Thanas]

I agree that nearly anything given out by the Big 3 ratings companies are highly suspect to say the least.
However, if we look at Ireland's economic & financial situation as a whole, can a plausible argument be made that their bonds shouldn't be at or near junk status at this point in time?

How about: The bailout will be covered in full by the bailout fond, who is not even close to being exhausted? It is a bit disingenious to look at Ireland as a lone nation state in this.