The Reason Why The European Leaders Trying So Hard to Keep Greece in the Eurozone

Nigel Farage has an eloquent speech about that:

Greece outside of the Eurozone may even be an inspiration for Portugal, Spain and many other countries.

There, you have it: the first reason, which we've mentioned many times here, is the belief that the whole banking sector of their respective country will collapse, and the second reason, is that the whole of the Euro might collapse, as countries start seeing the benefits of defaulting and leaving the single currency.

GRE Greece ETF Update and Charting the PIIGS Main Equity Indices [UPDATE]

The GRE Greece ETF is now trading at below 1.00€ (low of 0.985€) meaning that from the peak of about 14.00€, the drop has been more than 90%. One could wonder how much lower it can go.

Here's the details about the ETF, as captured from the French prospectus of the fund (click for larger image):

Conclusion: there's still room for further drop, as the banking sector still represents 33% of the index. 

[Update: initiated a small position on the ETF, bought at 0.985€ per share]

My friend SS has been kind enough to provide me on demand many charts and market data, and here's what he sent me on request yesternight: the charts of the main index of each of the PIIGS countries:

Greece: Top at 5346, currently trading at 553. This is a drop of 90%from peak. And it's a stock index of the 20 largest Greek capitalizations. 

Portugal: Top at 13729, currently trading at 4870. This is a drop of 65%. Same comment, this is the an index made of the largest companies in Portugal and my guess is that we're far from the bottom.

Ireland: Top at 10,000 bottom at 2,000 (drop of 80%) currently trading at 3,000. This is still a drop of 70% and my guess is that we're far from the bottom. 

Spain: Top at 16,000 currently trading at 6,500. This is a drop of 65%. My guess is that we're far from the bottom

Italy: Top of 44,000 currently trading at 13,000. This is a drop of 70%. And my guess is that we're far from the bottom

Portugal To Receive 600 million euros Bailout in December

This seems to have been planed for some time, but I don't remember hearing about it anywhere:

The European Union (EU) placed on 29 September a € 1.1 billion bond with 7 years maturity, completing a successful series of EU bond issuances done over the last weeks. The operation, under the European Financial Stabilisation Mechanism (EFSM), was carried out by the European Commission on behalf of the EU. From the proceeds Ireland will receive € 500 million and Portugal € 600 million of loans as part of their financial assistance packages.

Luxury Southern European Villas Prices Down 30% to 50% From Peak

The WSJ reports:

Spain, Portugal, Greece and, to a lesser extent, Italy, all immersed in the European debt crisis, are experiencing second-home property price declines. The countries' housing markets have been battered by escalating debts, recent austerity measures and deep uncertainty in the financial markets. A glut of new homes built in boom times in many popular vacation areas is making matters worse, as rental demand falls and financing requirements become stiffer. As a result, asking prices for second homes have fallen 15% to 30% in recent months. In less fashionable areas, prices for some properties are as much as half off what they were two years ago. 

"Price expectations have finally adjusted to the new reality. People are finally accepting that the game has changed," says Joachim Wrang Widen, director of Christie's International Real Estate in Europe.

Obviously, perma-bull talking heads and journalists present these facts with a bullish and positive view: it's time to buy! And you'll find many "investors" story about how great the opportunity is, once the price has been slashed by 18%. Do not listen to these! Fortunes will be wiped out before we hit the real bottom, somewhere 70 to 90% lower than where we are today.

It took a long time for the shift in mentally to happen, but things will go accelerating from here. Denial is about to end in these countries, and losses to be realized. In which cases, the banking sector, already against the wall, might finally collapse.

EU shoots at the messenger, attacks credit rating agencies, suggests bias

Another pathetic move from EU bureaucrats who believe that by calling a spade a spade — or in this case, by calling an insolvent country, insolvent — you create the spade out of thin air — or, in this case, that a perfectly stable and creditworthy economy can become insolvent just because the agency says so:

BRUSSELS (Reuters) - Europe issued a full-throated assault on credit ratings agencies on Wednesday, saying there were signs of bias against the European Union after Moody's downgraded Portugal's debt to "junk" status.

European Commission President Jose Manuel Barroso said Moody's decision to lower Portugal by four notches and maintain a negative outlook was fuelling speculation in financial markets. Europe was looking at getting away from its reliance on the mainly U.S.-based ratings companies and weighing possibilities for legal redress, he added.

His view was seconded by Germany's finance minister, Wolfgang Schaeuble, who said Portugal's downgrade was totally unjustified in present circumstances, when the country was taking steps to put its finances in order.
[...]
"Portugal is ... not only completely on course but even ahead of the curve, so there really is no factual justification for such an assessment at this early point," he said.

"We must break the oligopoly of the rating agencies."

It is not the first time during the sovereign debt crisis that the EU has taken the major agencies -- Moody's, Standard & Poor's and Fitch -- to task, but the message this time was delivered with a much greater sense of frustration.

Barroso's comments followed German Chancellor Angela Merkel's brushing aside on Tuesday of a warning from S&P, the largest agency, that it would view the current French plan for a partial rollover of maturing Greek debt as a default.

Such a move would narrow the options available to EU leaders to tackle the crisis and could greatly exacerbate the situation.

Merkel suggested the EU had depended for too long on the opinion of outside, private-sector agencies and said Europe had its own institutions that it needed to put its trust in.

"It is important that the troika (EU, IMF and European Central Bank) do not allow their ability to make judgments to be taken away," she said. "I trust above all the judgment of these three institutions."
[...]
"We plan measures to improve methodology and transparency of rating of sovereign debt, to reduce excessive reliance by financial institutions on credit rating, to further reduce conflicts of interest and introduce more competition," he said.

"We are for instance looking at civil liability by the agencies," he said.

EU officials have frequently criticized the ratings agencies for being American, although in fact only Moody's and S&P are U.S.-based -- Fitch has headquarters in both London and New York and is majority owned by a firm based in Paris.

There are moves afoot to have a Europe-based agency, although Barroso said no decision had been taken.

"I know that there are some possible developments regarding the possible creation of rating agencies originating in Europe said, without elaborating.

Before new laws are introduced, and policymakers don't expect them to be in place until the middle of next year at the earliest, there is little the European Commission or other parties can do to influence the agencies' decisions.

A pan-EU markets watchdog based in Paris has the power, however, to intervene if it sees failings in their work. It could withdraw their license to issue ratings, although such drastic step is unlikely.

Under assault from several corners of Europe, ratings agencies have begun to push back against the criticism.

The head of S&P in Germany defended his company's work this week, saying: "It cannot be that S&P puts its more than 150 years of creditworthiness, credibility and predictability on the line to enable politically motivated push-ups," he said, referring to the political desire to prop up Greece.

Portugal Lenders Bailout Approved — 78 billion €

Arrogance, incompetence and greed from the Portuguese government, people — who have been on a borrowing binge since WWII mortgaged the future of their children and grand children — and the international banks — which lent all that money to insolvent entities — have now led to a third bailout in the EU. But don't get it wrong, as it was the case for Ireland and Greece, this is not the bailout of the Portuguese government or people, it's the bailout of the lenders, and it's a scheme to transform the people into debt slaves.

Hopefully, these spending will just accelerate the fall of the dominos that are most of the sovereign economies. The few countries which have a decent balance sheet — such as Germany — are diluting their credit quality to bailout out the profligate economies which have no reason and no political will to reduce spending and borrowing.

There is no way that debt is going to be paid, so sooner or later, default will arrive. It would be a catastrophe for the stupid and incompetent lenders, but it would be a tremendous liberating force for the people, the economy as a whole, and would help set up a sounder safer system, since lenders will understand that lending is a risky business. Hopefully, the IMF will go insolvent as well in the process, and we'll get rid of this dangerous and useless post-Bretton Woods system.

That's how the economy works. The basic laws of economics are part of the laws of nature. If you don't like it, if you think it's unfair, get used to it. It's as if you complain about gravity being unfair. You cannot do anything about it, can you? So why do you think greedy and ignorant politicians can save you from the natural laws of economics?

May 16 (Bloomberg) -- European finance ministers endorsed a 78 billion-euro ($110.8 billion) bailout for Portugal as they stepped up pressure on Greece to do more to win improved aid terms.

Portugal followed Greece and Ireland in seeking emergency loans from the European Union and International Monetary Fund, bringing to 256 billion euros the aid provided to stamp out the sovereign debt crisis.
[...]
The European finance chiefs were also set to approve the nomination of Bank of Italy Governor Mario Draghi to be the next president of the European Central Bank.

Greek bonds fell after the euro area’s economic powerhouses put up hurdles to an expanded aid package, with public discontent simmering in northern Europe over the costs of propping up high-deficit countries on the continent’s periphery.

Finance ministers said the IMF’s role as the contributor of a third of the bailout money for Greece, Ireland and Portugal won’t be hampered by Strauss-Kahn’s May 14 arrest on sexual- assault charges in New York.
[...]
Greece, which received a 110 billion-euro loan package last year, is preparing a new economic-recovery program, including 76 billion euros of asset sales and spending cuts, to persuade European governments and the IMF to release the next 12 billion- euro portion in June.
[...]
Default is “just a nightmare,” ECB council member Christian Noyer said in Tokyo today. “It’s the absolutely wrong solution. It would be a catastrophe.”

Greece’s chances of escaping a restructuring hinge on the public mood in Germany, which crafted the euro’s low-deficit rules and, as Europe’s largest economy, is the biggest guarantor of the unprecedented loan packages.

Forty-one percent of Germans oppose further financial aid for Greece, with 48 percent in favor, according to an Emnid survey published in Bild am Sonntag yesterday. Some 58 percent voiced “very low” or “quite low” trust in the 12-year-old euro, up from 54 percent in December.

Portuguese Two-Year Notes Yield the Highest Since 1999 — Ireland to Release Stress Tests Results Today — Euro Close Multi-Year High Against the Dollar

While the Euro is trading at above 1.42$ and is up 0.02 in 48 hours, the European are still crumble and trying to find some ways to avoid default...

March 31 (Bloomberg) -- Portuguese two-year notes dropped for a ninth day, pushing the yield to the highest since before the introduction of the euro.

The yield rose four basis points to 8.07 percent, the most since 1996, as of 8:37 a.m. in London. The 10-year yield was unchanged at 8.10 percent.

Irish two-year notes were little changed, with the yield at 9.53 percent, while the 10-year yield dropped two basis points to 10.08 percent.

March 31 (Bloomberg) -- Three of Ireland’s biggest banks may have to raise a combined 9 billion euros ($12.7 billion) in capital after stress tests are published today, said five people with knowledge of the matter.

Bank of Ireland Plc, the country’s biggest lender by market value, will seek as much as 5 billion euros, said two of the people. Irish Life & Permanent Plc will require more than 3 billion euros, while EBS Building Society will need about 1 billion euros, three people said. The people declined to be identified because the figures haven’t been made public yet. All three companies are based in Dublin.
[...]

Portugal Government Collapses — Irish Readying a Hair Cut on Bond Holders — Euro Euphoria Sill On

I do not like to state the obvious, but...

... 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.
[...]