... It was obvious that asking the people of Portugal whether they wanted an austerity plan after 40 years of borrowing to spend and living beyond their means had absolutely no chance of succeeding. Moreover, the debt is currently so high, that no austerity plan can make these sovereign countries solvent again. So it is just wasted efforts and time to the ineluctable end game: default (partial or complete) on the debt. This is what Ireland is discovering, and what Greece will discover soon, and then the dominos will start falling.
The statement made by Socrates: "This crisis occurs in the worst possible moment" actually made me laugh. Crisis always occur at the worst possible moment, since they were in the making for 20 or more years, but nobody wants to tighten their belt during the "good times" and when money is flowing like someone was actually printing it — or was it actually the case??
And as usual, economists come with their suggestion that these insolvent countries should borrow from the IMF and the EU in order to become solvent. Good lord. One doesn't become solvent by borrowing more and getting more into debt. I think a 5 year old would understand that.
In case you missed this video, it's a fantastic one:
March 23 (Bloomberg) Portuguese Prime Minister Jose Socrates said he presented his resignation to President Anibal Cavaco Silva after parliament rejected the government’s deficit- cutting plan, raising the chance of an international bailout.
Socrates made the announcement tonight in an address to the nation after meeting with Cavaco Silva at the president’s residence in Lisbon. “This crisis occurs in the worst possible moment for Portugal,” Socrates said.
“If parliament decides on a motion against the stability and growth program, that means the government is not in a condition to make commitments internationally,” Socrates said on March 15. “That would mean a political crisis. In my understanding, the consequence of a political crisis is the worsening of the financing risks of our economy and would lead Portugal to request external intervention.”
Portugal intends to sell as much as 20 billion euros of bonds this year to finance its budget and cover the cost of maturing debt. Portugal faces bond redemptions in April and June worth about 9 billion euros in total. It also faces bill maturities in July, August, September, October and November.
“With bond yields stubbornly high and heavy debt redemptions due over the next few months, it appears all but inevitable that Portugal will be forced to follow Greece and Ireland in accepting financial support,” economists Emilie Gay, Roger Bootle and Jonathan Loynes of Capital Economics Ltd. wrote in a note yesterday.
March 17 (Bloomberg) -- Irish Prime Minister Enda Kenny said it’s “grossly unfair” that taxpayers alone should carry the cost of bailing out the country’s banks as he pushed for lower rates on a European-led rescue loan.
Kenny, on a visit to Washington where he says he’s trying to repair Ireland’s “damaged” reputation, called for changes to the aid package by the European Union and the International Monetary Fund to avoid a situation where Ireland struggles to pay back its loan and can’t generate economic growth.
“It is grossly unfair to expect the taxpayer to have to pay 100 percent for the reckless lending practices of banks which caused this in the first instance,” Kenny said yesterday in an interview with Bloomberg Television’s “InBusiness With Margaret Brennan” broadcast today. The 5.8 percent average rate Ireland pays for its loans is “too severe,” he said.
Kenny’s Fine Gael party took power last week after pledging to seek a European agreement on sharing the cost of rescuing the financial system with senior bank bondholders. His government is counting on ongoing stress tests to reveal the full extent of potential losses at the country’s lenders, after injecting 46.3 billion euros ($64.4 billion) into the financial system over the past two years.
Kenny stopped short of saying who should pay along with taxpayers. Asked about the treatment of senior bondholders, Kenny said that his government will put no additional cash into banks “until you see the scale of what the liability is, until there is an understanding of what might be here.”
Kenny met with Treasury Secretary Timothy F. Geithner yesterday as part of his U.S. visit. He will hold talks with President Barack Obama today and attend the annual White House reception for St. Patrick’s Day, Ireland’s national holiday.
The Irish prime minister vowed to keep the nation’s corporate tax rate “intact” to attract foreign investors, adding that his country is “open for business.”
Less than a week after failing to obtain a discount on the rate charged by the EU because of Ireland’s refusal to increase the country’s 12.5 percent company tax, Kenny repeated he is not willing to negotiate it.
“It’s not correct to equate a conditionality of a reduction in interest rates with the condition that a corporate tax is increased,” he said. “I am not prepared to compromise on something that is the individual competence of each country in respect of our corporate tax rates.”
The premium investors charge to hold Irish 10-year debt over the equivalent German bunds, Europe’s benchmark, was little changed today at 641 basis points. It reached a record of 680 on November 30, two days after the bailout.
Citigroup Inc. Chief Economist Willem Buiter said EU leaders are “playing with fire” by not acceding to Ireland’s request as it may force the country to restructure its debt unilaterally.
“They have to come up with something for Ireland,” Buiter said. “They’re going to have to make concession or Ireland will have no option but to go it alone.”
French President Nicolas Sarkozy and German Chancellor Angela Merkel at a March 11 euro-area leaders summit refused to extend a cut of Greece’s borrowing costs to Ireland as Kenny pushed back on taxes. Ireland has used the rate, which is about half the EU average, to lure companies such as Hewlett-Packard Co. and Pfizer Inc.
Ireland pays an average 5.8 percent interest rate on the 67.5 billion euros of aid from the IMF and the EU. Kenny said he expects to obtain “some flexibility” from Europe.
Feb. 28 (Bloomberg) -- Enda Kenny will push for the quick formation of an Irish government and the re-negotiation of an international bailout after what he called a “democratic revolution” reshaped the nation’s political landscape.
He’s seeking to lower the 5.8 percent interest rate on the bailout loans and end the protection of senior bank bondholders.
“We can count on a good match forthcoming with Germany and France in one corner and Ireland in the other as a Battle Royale gets played out in front of a worldwide audience,” Mark Grant, managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, said in an e-mail yesterday.
Kenny said the bailout cost is “too much” and he’ll seek agreement to ease the terms, including the existing protection of senior bank bondholders. EU Economic and Monetary Affairs Commissioner Olli Rehn said on Feb. 15 there is “no appetite” for imposing losses on senior bondholders at Irish banks.