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Portugal: Bail-out finance looks cheap

Robert Peston | 11:41 UK time, Wednesday, 6 April 2011

Here are the results of Portugal's auction of treasury bills.

Illuminated euro sign

Portugal has borrowed 550m euros for six months at an interest rate of 5.1% and has also borrowed 455m euros for a year at 5.9%.

This is very expensive money for a eurozone sovereign.

The interest rate on the 12-month loan is more than the 5.8% Ireland paid on average for it 7 1/2-year rescue loans from the eurozone and IMF.

And, as you know, the new Irish government is kicking up a stink that its predecessor agreed to unaffordable terms last November.

The new Irish premier, Enda Kenny, is negotiating with eurozone partners to get the rate down - lest the cost of servicing the loan traps Ireland in a vicious cycle of economic contraction.

On that basis, it would be unsustainable for Portugal to borrow such short-term money at 5.9%.

The result of Portugal's auction of treasury bills implies that investors are not convinced that they will get all their money back on the due date - they've demanded the kind of premium which implies (as a minimum) that there's a risk of a forced extension of the maturity of the loan, and that it could become subordinate to other claims on the country (such as rescue finance).

As for Portuguese politicians, the high rate for borrowing 12-month money on the market implies that any new government would be bonkers not to go for a eurozone/IMF rescue package - because it is increasingly difficult to see how a bailout could be more expensive (except in respect of national pride).

UPDATE 20:44 

Portugal’s caretaker premier, Jose Socrates, has disclosed that his country has today asked the European Commission for financial assistance. The process for negotiating rescue loans – which could be as much as €80bn – is now underway.

 

Comments

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  • Comment number 1.

    I think this is a slow-motion carcrash that everyone could see coming. How long will it before they or other PIGS reach breaking point and drop out of the Euro. The sooner the better in my view.
    It makes a good backdrop for UK economics as well - this is the result of running a large, unsustainable budget deficit. Take note Mr Balls.

  • Comment number 2.

    Hark? Was that the sound of a can being kicked?

  • Comment number 3.

    Imagine if the UK had to pay 5.9% for its bonds , what reduction in public services would it mean - 25% immediate cut ? , on top of current proposals.

    Talk of delaying cuts in our public services / benefits is dangerous talk - The MP's have gold covered pension requirements , you want be seeing any of those living in cardboard boxes on the streets.

  • Comment number 4.

    Frankly I am sick and tired of the idea of keeping these various EU countries afloat with tax payers money, which we all contribute to in Europe.
    Let the banks take it on the chin. They took a gamble in Ireland, Portugal, Spain, etc. and got it wrong. So the Masters of the Universe are not infallible.
    If a bunch of banks, hedge funds and others who gambled the wrong way have to take a haircut, then so be it. If some of them go bust, then so be it. Maybe then, some of them will be a little more careful with other people's money next time they decide to play the tables. There are ways they could be wound down without damaging the innocent savers and depositers, but as for the shareholders and management, they should pay the price.
    It will also send a message to the banks that they are not able to win:win despite making such bad decisions.
    Why should the people of Europe keep on bailing out banks and governments who acted irresponsibly? Yes I know that this could all lead to a domino effect and a crisis of confidence, etc. etc. However, enough is enough.

  • Comment number 5.

    Dodgy banks with suspect balance sheets can borrow from the ECB at 0.5% to buy Portugese guilts at a yield of 5.9%.... or the ECB buys Portgugese guilts at 3% yield while lending to dodgy banks at 0.5%...

    The system works so why tinker with it ????... Reality changes when you observe it. Royal weddings and Libya keeps the focus elsewhere

  • Comment number 6.

    Implies that they don't think that they will get all their money back eh? Don't be daft! If that was the case, interest would be 50% not 5%. The truth is that investors know that the ECB stands behind these loans and are just happy to have the opportunity to make an extra turn out of any of the PIIGS, compared with UK @ 3.3% for example. The ECB has a 'put' option on the market and everybody knows it, just as Bernanke has a 'put' option on the Dow Jones. I wonder who has a 'put' option on the ECB or The Fed come to that? Me and thee probably.

  • Comment number 7.

    I feel sorry for the Portuguese people, but will this mean that Golf greens fee in the Algarve reduce to UK levels or actually even become good value for money? I hope the Portuguese people wake up and smell the coffee soon, but in the meantime I'm looking forward to cheaper beer and general cost of living during my numerous trips out there.

  • Comment number 8.

    Portugal is a proud nation but current has no legitimate government which is able to agree on a sensible plan of action. The Bible has a saying which general is taken as 'Pride comes before a fall'. This means that people become over confident and stop thinking sensibly when they have been used to success. This is a sure indication of the fact that that person or group of people are bound to suffer or face disappointment because of the wrong decisions that they might make. In other words too much arrogance and self pride are sure to bring bad and disappointing results. This idiom is also given as an example to prove that when a person is destined to fail or fall then no one can stop that person from taking the wrong step and making a wrong decision, despite the fact that apparently that person is not expected to do such a thing under normal conditions.

    Get out of the Euro and buy Gold.

  • Comment number 9.

    1. At 12:07pm on 6th Apr 2011, Peter White wrote:

    .............It makes a good backdrop for UK economics as well - this is the result of running a large, unsustainable budget deficit. Take note Mr Balls.............

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

    I'm kind of getting sick of saying this but here goes again - EVERY government has run up a net term deficit since the war, its how it works. We even managed to set up the NHS when we were running a deficit at around 200% of GDP and the glorious exponents of the Chicago School of Eonomics in the 1980's ran higher deficts to GDP than anything Brown and Blair ever did. And no I'm not a labour suporter either.

    I'm not saying its right that's just how it is. Capitalism gets its profit from debt whether it be public or private. For arguments sake lets say capitalism starts next Monday, at the end of the week the boss pays out wages of £x and puts the goods up for sale. We only have £x to spend so where does the profit come from - debt. Simplistic but sound.



  • Comment number 10.

    Alternatively, Portugal would be bonkers not to default. Creating a new debt to service an old debt is a slippery slope into the abyss. The debt must be destroyed and reduced to an affordable level. Without doing so will result in the death spiral to the economy.

  • Comment number 11.

    Robert, can you take ten minutes to send this to your colleagues in the BBC newsroom who seem so aggrieved by the 'cuts' in spending. We hear the same monotonous complaint every day from them and the Shadow Chancellor my hope is that some of them may see the light and realise that all the recent spending increases are just not sustainable. We don't know yet what is going to happen to he PIIGS but lets be thankful that our coalition at least has the sense to steer as clear of this particular minefield as they have.

  • Comment number 12.

    Time for a Keynes obituary?

  • Comment number 13.

    9. At 12:47pm on 6th Apr 2011, NorthSeaHalibut wrote:
    1. At 12:07pm on 6th Apr 2011, Peter White wrote:

    .............It makes a good backdrop for UK economics as well - this is the result of running a large, unsustainable budget deficit. Take note Mr Balls.............

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

    I'm kind of getting sick of saying this but here goes again - EVERY government has run up a net term deficit since the war, its how it works. We even managed to set up the NHS when we were running a deficit at around 200% of GDP and the glorious exponents of the Chicago School of Eonomics in the 1980's ran higher deficts to GDP than anything Brown and Blair ever did. And no I'm not a labour suporter either.

    I'm not saying its right that's just how it is. Capitalism gets its profit from debt whether it be public or private. For arguments sake lets say capitalism starts next Monday, at the end of the week the boss pays out wages of £x and puts the goods up for sale. We only have £x to spend so where does the profit come from - debt. Simplistic but sound.

    ......
    All governments have been in debt since we were conned by the Bank of England into dropping government issued tally sticks (debt free) for gold (issued as a debt by the BoE). Since then we have moved onto paper fiat money, which is made from wood (how ironic), and yet we still have it issued as a debt. Total madness.

  • Comment number 14.

  • Comment number 15.

    Peter@1

    Ken Clarke took our debt from £160bn to £350bn all without the aid of a global financial crash. Also managed 4 of the 7 highest real terms deficits since 1980. Not sure we should be picky about the relative dismerits of economic mismanagement over the last 30-40 years.

    Comparisons to other countries always seems to miss out relative debt (not deficit) levels and the profile of that debt (when it is due to be paid back and hence amount of time to get back to some form of equilibrium). I suspect that is because it doesnt suit the political argument of the day.

    We're in a tangle, lets not pretend otherwise, but probably best to take a long term view both back the way and forwards to try and work out the best way through it.

  • Comment number 16.

    11. At 13:00pm on 6th Apr 2011, RichYork wrote:
    Robert, can you take ten minutes to send this to your colleagues in the BBC newsroom who seem so aggrieved by the 'cuts' in spending. We hear the same monotonous complaint every day from them and the Shadow Chancellor my hope is that some of them may see the light and realise that all the recent spending increases are just not sustainable. We don't know yet what is going to happen to he PIIGS but lets be thankful that our coalition at least has the sense to steer as clear of this particular minefield as they have.

    .........
    This minefield will be here quicker than you think, once the cutbacks take hold. Our financial position is no better. The Governments 'solution' can only work if the assumption that economic growth returns is correct. But it is not. The same issue effects the Labour party's cut later approach. Neither will work.

  • Comment number 17.

    9. At 12:47pm on 6th Apr 2011, NorthSeaHalibut wrote:
    1. At 12:07pm on 6th Apr 2011, Peter White wrote:

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

    Don't blind him with science - another one who thinks there is a difference between the major parties.

  • Comment number 18.

    9. At 12:47pm on 6th Apr 2011, NorthSeaHalibut wrote:
    1. At 12:07pm on 6th Apr 2011, Peter White wrote:

    .............It makes a good backdrop for UK economics as well - this is the result of running a large, unsustainable budget deficit. Take note Mr Balls.............

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
    Capitalism gets its profit from debt whether it be public or private. For arguments sake lets say capitalism starts next Monday, at the end of the week the boss pays out wages of £x and puts the goods up for sale. We only have £x to spend so where does the profit come from - debt. Simplistic but sound.
    ===============
    Eh! If the only money available to buy the goods is the wages paid for their production (ignoring materials, overheads etc.) a progit cannot possibly be made or have I missed somethng?

  • Comment number 19.

    #18. At 13:30pm on 6th Apr 2011, AnotherEngineer wrote:

    "Eh! If the only money available to buy the goods is the wages paid for their production (ignoring materials, overheads etc.) a progit cannot possibly be made or have I missed somethng?"

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

    Obviously too simplistic if I have to explain it all.

    Yes, you have missed something, company debt! The whole thing is financed by debt, production, wages, sales the LOT. Alternatively the company owners provide the initial investment but unless they buy their own stuff the profit comes from debt.


  • Comment number 20.

    The Dillers has learnt that
    "Experts" got people into this mess and its many of the same "experts" who are trying to (allegedly) get people out of this indebtedness by increasing their debt. The reasons why this is a good idea please to be written on the back of a €5 note - in 1 hour on the back of a €10 note - in 2 hours on the back of a €20 note etc. Answers received after the due date may be pointless as the € may not be worth the paper its printed on.

  • Comment number 21.

    Maybe the UK could borrow more money from the international markets at a cheaper rate and lend it to the Portugese at 5%? Hey, we could all make a fortune!

    It's all a money-go-round and it has to stop.

    It's time for governments to wean their banks off the life support system they have been promised.

    Let them default if necessary and protect only the deposits.

  • Comment number 22.

    So what exactly would happen if Portugal and for that matter Ireland decided to default?

    Perhaps the EU would suspend trade and any payments with the offenders. Unable to pay its employees, public sector services grind to a halt with all that that entails? Law and order breaks down with widespread looting and rioting?

    Or perhaps freed from financial penalties Portugal and Ireland could trade successfully outwith the EU, perhaps without the shackles of their debt they could develop their internal markets. Buy Irish! After all there may be no alternatives (although I suspect the Chinese may be happy to trade with the rebels, widening EU divisions).

    I suspect it's more likely that the country would break down but maybe, just maybe, it wouldn't.

  • Comment number 23.

    Has it occurred to anyone else that the EU has been set up, as in set-up to fail financially?
    I have said it once, but I'll say it again: the composition of the debt should be audited. Has this been done? If the debt is comprised of nefarious American, huge investment bank products, these are very likely illegal both due to their complexity and the way they have been bundled. I suspect this is part of the truth re EU sovereign debt.
    If I am right, the EU debtors should be "holding" (not necessarily defaulting, but holding) for a Court Ruling on whether ther debts are legal and therefore subject to payment.
    If they are not legal, the involved EU countries should be suing the huge investment house or the originator of the nefarious product, suing them in Court an with interest (including subsequent costs that resulted from the financial debabacle).
    eg. I know that Goldman Sachs was involved in the creation of the Portuguese debt. So Portugal should be one country that is "holding" and courting.
    Has it occurrred to anyone else that EU (especially utilizing the PIIGS) has been squeezed into the position where a eurozone/IMF rescue package becomes necessary.
    It only takes one country to stand up and say "No payment until the debts are completely audited and nefariuous products are adjudicated in Court."
    I'm sure that most people suspect that something under-handed has gone on to create such humunguos debt and most people would like clear, open transparency on what exactly it is that they are being asked to repay.

  • Comment number 24.

    Not so, Peter White. Dropping out of the Euro to devalue its replacement would lead to immense capital flight during the years of implementation. Joining the Euro really is a marriage for eternity, for richer and for poorer.

  • Comment number 25.

    19. At 13:47pm on 6th Apr 2011, NorthSeaHalibut wrote:
    Obviously too simplistic if I have to explain it all.

    Yes, you have missed something, company debt! The whole thing is financed by debt, production, wages, sales the LOT. Alternatively the company owners provide the initial investment but unless they buy their own stuff the profit comes from debt.
    =============
    Yes, I am pretty simple! I understand that the company is probably financed by debt, but the interest is another charge reducing any profit. So how does the profit come from debt?

  • Comment number 26.

    Good post @ #9.

    But #1 is valid, too, in that one of the causes, or one of the MAJOR causes, of our present woes is too much debt applied in the wrong way at the wrong time.

  • Comment number 27.

    Much as I hate to say I told you so, I did.

    The Euro project requires, for the economics to stand a chance of working, either large scale movement of people from poor countries to rich or large scale money transfers from rich to poor.

    This is not contraversial - just look at UK, the same principles apply between NE England and London or between Scotland and SE England.

    The problem is that the politicians selling the EU project kept rather silent about this for the simple reason that they knew large scale movement of people would be unacceptable to virtually all of northern Europe and large scale transfer of wealth would be unacceptable to Germany.

    The only reason it is taken so long for this to become clear is that (a) this is the first economic crisis since start of Euro and (b) there had been some large scale money transfers doen privately - Germans buying property in Spain, Irish banks hovering up wholesale lending markets for example.

    It really makes no difference whether (as pro-EU posters would like) a more co-ordinated approach to fiscal policy you will still need large scale wealth transfer mechanisms. Some parts of the EU are wholly uncompetitive for reasons that can be solved (corruption, too much wage inflation, lack of education being obvious examples) but other parts will be uncompetitive for reasons which are substantially unsolveable (geography, lack of large scale resources being the obvious examples).

    Take the UK for example. There are parts of Scotland that have been an economic backwater for 200 years. The reason has nothing to do with inept policy, the people there are not stupid or idle (mostly entirely the opposite) but fundamentally it is an area which is a long way from any large scale market, has few commercially exploitable natural resources, a small population and transport links which geography rather than lack of money make for real difficulties. The population of those areas a long time ago decided that moving was the best solution, so those areas gradually depopulate which makes the economy of that area worst which ends up in a brutal cycle. With demise of large scale coal and steel making there are parts of rural Wales and NE England who are now experiencing exactly the same thing. The only saving grace for those areas is that are sufficiently close to large urban areas that eventually living there becomes sufficiently cheap to attract significant numbers of commuters.

    Going back to Europe, it may be sad, but it is entirely possible that Portugal is a bit like the Highlands of Scotland, beautiful but inevitably doomed to be an economic backwater. Ireland may be the same although I have hopes thatlarge high capacity fibre optic cables between itself and USA (a 21C equivalent of transport links) could boost its high tech industry sector to avoid becoming an economic backwater. Neither Spain nor Greece look to me to be inevitable backwaters. I think their problems are solveable - whether there is the political will and ability to solve them is an entirely different question

  • Comment number 28.

    So the solution for some is more austerity? The more austerity is pushed the more difficult it is for governments to pay bills and reduce the deficit - is this not the lessons of Ireland and Greece - if not give them a bit more time to prove the point.

  • Comment number 29.

    These bailouts - PIGGS - are really beginning to annoy me.
    Why?
    Because I don't know what is being bailed out, though I do know by whom; THE TAXPAYER.
    The case of Portugal and Greece are somewhat similar.
    There has been more than one suit filed against the European Central Bank, seeking the disclosure of documents showing how Greece (in consultation with Goldman Sachs) used derivatives to displace its fiscal deficit into the future and thereby helped trigger Greece's sovereign debt crisis.
    The lawsuit asked the European Union’s General Court in Luxembourg to overturn a decision by the ECB NOT TO DISCLOSE two internal documents drafted for the central bank’s executive board.
    The documents show how Greece (in consultation with Goldman Sachs) used swaps to hide its borrowings, or at least defer them (with no entry on the books).
    ECB President Jean-Claude Trichet withheld the documents after the EU and International Monetary Fund led a 110 billion-euro bailout ($144 billion) for Greece. If this doesn't seem suspicious to you, it does to me.
    The documents should be disclosed (if they haven't been) to stop governments from employing derivative bundles in a similar way again as well as to show how EU authorities acted on information which they had on credit default swaps.
    The EU is dependent on EU states taking an open and transparent approach in relation to their levels of debt. If Greece failed to do so, there is a compelling public interest in relevant information not disclosed, and the fact that this may take forensic accounting to ascertain. There us every possibility that Greece was not being secretive, but was simply ignorant and believed that what it was doing was legal (i.e. displacing debt into the future).
    The ECB case follows a 2008 lawsuit SEEKING DISCLOSURE OF THEIS FEDERAL RESERVE RECORDS. A group of rather large banks is appealing to the Supreme Court over lower-court decisions ordering the Fed to comply. What's the problem? Doesn't the Federal Reserve keep books?
    We need transparent markets over the entire globe, not this muck that the globe is currently plodding us through. Decisions made behind closed doors (Remember AIG.)have contributed to global economic mayhem. Money disappears; questions remain unanswered. Some gain unfair advantage.
    Confidence grows with clear and transparent information. I want that from the ECB, but especially from the Federal Reserve and the huge investment banks that went on a merry spree of developing nefarious products intended to create debt for the beholder (e.g. Greece, Portugal). This is generally called "greed".
    Eurostat, the EU’s statistics agency, stated that swaps have added 5.3B euros to Greek debt. Greece’s national accounts have never been audited to acccount for nefarious accounting practices; in otherowrds, I believe they, like other PIIGS, got fleeced.
    ECB officials first detected “a swap operation in UNUSUAL terms” in April 2009, seven months before the Greek crisis erupted, but what is not clear is what (if anything) the ECB did at that time to pres an investigation.
    Clarity is critical. Markets need to know, but not everyone is a forensic accountant, but almost all companies and countries have access to a forensic accountant.
    Market swaps from 2001 through 2007, led to agreements that have left our little PIIGS drowning in debt.
    This huge situation of potential fraud, illegal trading, etc. needs a good housecleaning before TRUST can be re-established. Dubious and illegal products must be banned.

  • Comment number 30.

    22. At 13:51pm on 6th Apr 2011, dungolfin wrote:
    So what exactly would happen if Portugal and for that matter Ireland decided to default?

    Perhaps the EU would suspend trade and any payments with the offenders. Unable to pay its employees, public sector services grind to a halt with all that that entails? Law and order breaks down with widespread looting and rioting?

    Or perhaps freed from financial penalties Portugal and Ireland could trade successfully outwith the EU, perhaps without the shackles of their debt they could develop their internal markets. Buy Irish! After all there may be no alternatives (although I suspect the Chinese may be happy to trade with the rebels, widening EU divisions).

    I suspect it's more likely that the country would break down but maybe, just maybe, it wouldn't.

    ...........

    Fear is what is preventing countries defaulting, and fear of how the capitalist system will react, not the reaction of the people. But similarly, if you impoverish a whole nation to repay debts to the financial 'elite' that simply are too big to service (and ironically occured due to a failure of the banking system in 2008), you also risk a public reaction. Max Keiser refers to the need for an "insurrection against the global banking occupation". I now understand what he means. The 'tool' of indebtedness has been used to force third world countries to impoverish their people and privatise everything to maintain debt servitude, for decades. It would be a mistake to follow the same path.

  • Comment number 31.

    Yawn! Nice safe blog this one, RP ... the PIIGS are bust .... Blah!

    What about bent GDP and our country not being able to sustain its increased population level and quantity, inflated prices and quality of imports ... as all financed by those international monetary spivs ... Isn't that the big business issue?

  • Comment number 32.

    22. At 13:51pm on 6th Apr 2011, dungolfin wrote:
    So what exactly would happen if Portugal and for that matter Ireland decided to default?
    =================
    They would not be able to borrow any more money, so would not be able to pay their bills.

  • Comment number 33.

    32. At 15:25pm on 6th Apr 2011, AnotherEngineer wrote:
    22. At 13:51pm on 6th Apr 2011, dungolfin wrote:
    So what exactly would happen if Portugal and for that matter Ireland decided to default?
    =================
    They would not be able to borrow any more money, so would not be able to pay their bills.

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

    And then? Who amongst their creditors would then not be able to pay their bills? And so on and on.....

    Where, if at all, would it stop?

  • Comment number 34.

    29. At 14:41pm on 6th Apr 2011, BluesBerry wrote:
    The ECB case follows a 2008 lawsuit SEEKING DISCLOSURE OF THEIS FEDERAL RESERVE RECORDS. A group of rather large banks is appealing to the Supreme Court over lower-court decisions ordering the Fed to comply. What's the problem? Doesn't the Federal Reserve keep books?
    ......
    The federal reserve is simply the slave of the global banking cartel. It is there simply to do their bidding. In fact there is nothing 'federal' about it. Its just a private bank. Transparency is the last thing they want as it will expose the cartel and their, in effect, ponzi scheme for what it is. A tool to extract world wide wealth to enrichen the members of the cartel.

  • Comment number 35.

    32. At 15:25pm on 6th Apr 2011, AnotherEngineer wrote:
    22. At 13:51pm on 6th Apr 2011, dungolfin wrote:
    So what exactly would happen if Portugal and for that matter Ireland decided to default?
    =================
    They would not be able to borrow any more money, so would not be able to pay their bills.

    .......
    Good. Then they could introduce monetary reform, and democratise the whole process of creating the medium of exchange. The purpose of which, which is often forgotten, is to facilitate the exchange of items of real wealth, as opposed to the giant wealth extractor that debt based money supplies represent. Of course EA and I disagree over whether our money supply is issued as debt. But I think it is and this is why I dont see default as a problem.

  • Comment number 36.

    12. At 13:10pm on 6th Apr 2011, sandy winder wrote:
    Time for a Keynes obituary?

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

    This happened because countries failed to follow Keynesianism, not because of it. Keynes never said 'run deficits, all the time, even during the expansions!'.

    Those who claim to be Keynesian because they spend in the bad times are missing out half of the economic cycle. What to do in the good times?

  • Comment number 37.

    28. At 14:11pm on 6th Apr 2011, watriler wrote:
    So the solution for some is more austerity? The more austerity is pushed the more difficult it is for governments to pay bills and reduce the deficit - is this not the lessons of Ireland and Greece - if not give them a bit more time to prove the point.

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

    They were too late, and don't have the basis required for austerity to work now. They're screwed, quite frankly. Not because of austerity, but because austerity can't help them.

  • Comment number 38.

    Well, one can not expect the banks, who caused all of this, to change their behaviors and deal honestly with governments. Until governments begin to regulate the size of banks and investment firms governments will always be subject to extortion by consolidation of wealth....big money runs governments not elected officials... this is just the way the banks say thank you for the bail-out. There will be no suffering for the wealthy because of their own gambling....only suffering for everyone else.

  • Comment number 39.

    While there are many good reasons to argue for a hair-cut and to impose losses on investors it does surprise me the readiness with which some people favour it. A large proportion of these debts are owned by pension funds which agregate funds for the ordinary man on the street. The so called masters of the universe will suffer little if at all.

    Hedge funds as unplatable as it may seem to make money out of others misfortune may actually be giving us an early warning. If we allowed ourselves to continue borrowing with no end insight, the consequences may have been all the much worse had the current financial crisis not happened. Remember not only do most countries have a large national debt now they do not include the underfunded public pension schemes in place, which, may double this figure (or even a higher multiple). Perhaps this is losing a finger versus losing a limb e.g. the Great Depression.

    For as long as there has been money there has been speculation of one sort or another (tulip bulbs in holland!). Hindsight is there, this will not be the last time there is a run on a bank or a financial crisis etc. Our governments have let us down by not having a rainy day fund in place or being entirely honest. We voted or even worse did not vote at all for our governments and they acquired the vast bulk of the debt prior to the crisis with their eyes open. If I take bank loan it is my responsibility to pay it back. Bankers, regulators, governments and voters need to take responsbility otherwise it will and always be someone elses fault.

  • Comment number 40.

    This is not going to end well. Irish bond holders are facing a "haircut" at best and wipeout out worst. Poor banks.

  • Comment number 41.

    39. At 15:53pm on 6th Apr 2011, Tristan wrote:

    While there are many good reasons to argue for a hair-cut and to impose losses on investors it does surprise me the readiness with which some people favour it.
    ...
    Why the surprise? If it not possible to service the debt without impoverishing the country, then default it must be. The bailout fund is like borrowing on your credit card to pay the mortgage.

    We voted or even worse did not vote at all for our governments and they acquired the vast bulk of the debt prior to the crisis with their eyes open. If I take bank loan it is my responsibility to pay it back. Bankers, regulators, governments and voters need to take responsbility otherwise it will and always be someone elses fault.
    .....
    What difference does it make who you vote for when the Government doesn't hold the purse strings, and you get a gun put to your head. i.e. save the banking system or it will collapse. Until there is democratic control over the creation of money, we are left to the whims of the market, who are driven by profit, and the inevitable results of that process, when they bet too big.

  • Comment number 42.

    #25. At 14:01pm on 6th Apr 2011, AnotherEngineer

    Sorry if I’m being very simplistic again, I’m not trying to insult your intelligence but I’m trying to simplify a very complex circular economic formula, let’s have a go at this:

    Company
    Debt/Saving – Investment – Production – Wages – Sales – Profit/Loss

    Individual
    Labour – Wages – Purchases – Debt/Saving

    I can’t space it properly on here but align “Labour” under “Production” then align each factor from that point, i.e. wages will be aligned in both.

    The common denominator is wages which under capitalist models is driven to the lowest operational point while sales are driven to the highest. Now if these margins are too high most profit is financed by debt. Also please note that under every “Company” formula you must have one “Individual” formula for all employees AND purchasers. It is the sheer number of individual formula’s required to produce profit from the supply of wages they must be fuelled by debt, some individual’s will end with savings but everyone can’t have savings and draw wages plus provide profit so the net end of the cycle is always debt.

    Government debt is thrown into the equation as sharing the purchases and wages but having no production. All government wage is produce by public debt because wages and tax take are driven down. In effect profit sucks in government debt.

    It’s far more complex than this because you have individual hierarchy and measure of non-productive services, this is a basic structure at the lowest point where debt is significant.

    To be honest just mess about with the formula and you'll get the picture, its methodology around ideology, just think the end goal is profit and what you can do to each factor to acheive the goal and bingo, wouldn't it be good if we could run deficits and enormous debts. Like I said I don't agree with it but that's how it is.

  • Comment number 43.

    32. At 15:25pm on 6th Apr 2011, AnotherEngineer wrote:
    “22. At 13:51pm on 6th Apr 2011, dungolfin wrote:
    So what exactly would happen if Portugal and for that matter Ireland decided to default?
    =================
    They would not be able to borrow any more money, so would not be able to pay their bills.”

    Good question dun and an answer of sorts AE.

    30. At 15:06pm on 6th Apr 2011, Averagejoe wrote:
    “Fear is what is preventing countries defaulting, and fear of how the capitalist system will react…”

    The entire global system is paralysed by fear. Austerity doesn’t seem to launch a sovereign to ‘growth’ (not a word I like to use as pursuing GDP growth on a finite planet is gross negligence and unsustainable) as demonstrated by Greece and Ireland. Our austerity starts now and we already have high street mayhem, industrial weakness and car sales (the second biggest ticket item) down by neigh on 8% (just today’s stories). Money seems to be falling out of circulation.

    Ladies and gentlemen it seems that the politicians and we the public FEAR capitalism/The Market. What a situation to be in…

    A couple of scenarios spring to mind.
    1. Greece, Ireland and Portugal default. They can’t borrow any more money; the countries begin a death spiral and their citizens suffer and so do the French, German, US and UK banks who have their hands in their pockets. The countries in which the HQ of the banks are located also suffer. Payment of a wage to the citizens becomes problematic the citizen can’t pay their bills so energy companies don’t get paid and they suffer. All outstanding debts are equally not paid. The citizens then lose their houses the banks take control of the property but house prices plunge. The spiral continues. Here’s a leap; farmers can’t borrow money to plant their crops and feed their animals and people begin to go hungry. All sorts of mayhem and predictability ensue.

    2. The rule classes realise what will happen if drastic measures aren’t taken and reform the monatory system and call a global debt jubilee and little of the above happens.

    To paraphrase a couple of dudes: ‘This is another fine mess we’re in.’ At least to them everything was black or white!

    So a question: What would happen if we all defaulted at the same time, countries and the public there within?

  • Comment number 44.

    When I look at countries like Greece, Portugal and Spain (I hate the term PIGS) I remember the poor countries that they were not so long ago. Now I look at their retirement policies, social benefits etc and I think 'How do they do it?', These countries seem to be able to afford more than Germany (of course Germany might end up paying, I suppose). It seems to me that unless al EU nations adopt the same principles for social benefits they will never be able to harmonize the european economies and the euro will never be safe. Surely the haste with which the euro came in was in order to force the development of a european government, if that doesn't happen is the euro really feasible?

  • Comment number 45.

    38. At 15:50pm on 6th Apr 2011, ghostofsichuan wrote:
    Well, one can not expect the banks, who caused all of this, to change their behaviors and deal honestly with governments. Until governments begin to regulate the size of banks and investment firms governments will always be subject to extortion by consolidation of wealth....big money runs governments not elected officials... this is just the way the banks say thank you for the bail-out. There will be no suffering for the wealthy because of their own gambling....only suffering for everyone else.

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

    Yet more astounding misconceptions. Banks didn't loan Ireland the money that came from the IMF and the Eurozone. They had a responsibility to run public finances, and they failed. They deserve their proportion of the blame.

  • Comment number 46.

    The BBC is so up-to-date....NOT!!!
    Stagflation: meet economic collapse. The UK basket case is getting very, very ugly, with today's obliteration of Industrial Production putting in doubt expectations of a BOE hike. From AP: "British industrial production fell 1.2 percent in February from January, an official report said Wednesday, marking the largest monthly fall since August 2009 and far worse than analyst expectations for an increase of 0.2 percent. The Office for National Statistics said a 7.8 percent drop in oil and gas extraction was the main reason for the fall, while the manufacturing sector was flat." And the winner: "It may be that the industrial recovery is past its peak," said Samuel Tombs, U.K. economist at Capital Economics. Industrial production accounts for 17 percent of British GDP." That's the bad news; the good news is that with runaway inflation which is now surging at 5%+ the economy has got to be improving: after all where would all this demand be coming from if not from some massive latent recovery. Oh wait, what's that you say: endless liquidity? You don't say. Well, never mind then. In other news GBP crosses get obliterated as rate hike expectations are put on hold. In fact what you can put on the front burner is more money printing, both at the BOE and the Fed because central banks are so much more adept at "controlling" inflation than deflation.

  • Comment number 47.

    At 16:16pm on 6th Apr 2011, Averagejoe wrote:

    "Why the surprise? If it not possible to service the debt without impoverishing the country, then default it must be. The bailout fund is like borrowing on your credit card to pay the mortgage."

    The surprise is that people have not actually considered the fall out. Perhaps you know where your pension provider, bank or fund has invested their money. Many people actually do not. However they would thus inflict a haircut on themselves. Not everyone who invests for their future is rich. They may just be prudent...To follow your logic do we want to pay more bailout money to our exposed banks when we haircut them?

    "What difference does it make who you vote for when the Government doesn't hold the purse strings, and you get a gun put to your head. i.e. save the banking system or it will collapse. Until there is democratic control over the creation of money, we are left to the whims of the market, who are driven by profit, and the inevitable results of that process, when they bet too big."

    It seems a contradiction, voting implies democracy. Additionally it allows a person to stand for election. The government is a mere creation of votes. We voted or not. Hence change your vote next time or take action if you find what is on offer does not represent you. We sat high on the profits and property bubble enjoying and "profiting" from it (in the short term). I merely say do not impose yet more undue stress on the system but do reform it so it does not happen again. It is time to draw a line but do we really want to give the markets yet more targets to attack?


  • Comment number 48.

    Maybe we should ask Portugal if they want a loan of Ed Balls

  • Comment number 49.

    Is anyone else quite excited by this? I'm sitting in my mortgage free house, some money in the bank, some stocks & shares, vegetables in the garden, shotgun in the cupboard (locked away and fully licensed Auntie!). If it all goes bust I think I'll be fine but it will be mighty fun to watch.

    Especially all the bleeding heart liberals being cannibalised as they try to restore order.

    I genuinely don't care anymore, the world could do with a massive jolt.

  • Comment number 50.

    These are indeed sad days for Portugal who is drifting rudderless without a government and has a situation which is going from bad to worse. Many may not realise how much its previous bond issues were in effect bailed out by the European Central Bank. Here is an interesting blog post on this issue.

    "Actually I can go further as there has only really been one real buyer of Portuguese debt in recent times and it is the European Central Bank via its Securities Markets Programme. It is estimated to hold at least 20% of Portuguese government debt now. If you think about purchases of this size and the markets falls then you can come to only one conclusion there have no virtually no other buyers at all.….

    One clear corollary of this is that the ECB has created a “false market” in Portuguese government debt. It appears to have forgotten that central banks are supposed to stop false markets rather than create them!"
    http://t.co/1c7vRnH

    Any doubt about this has been taken away by the fact that since the ECB stopped buying such debt the Portuguese situation has accelerated downwards...

  • Comment number 51.

    This is Robert Peston's interpretation:

    "The result of Portugal's auction of treasury bills implies that investors are not convinced that they will get all their money back on the due date... "

    That is my interpretation:

    "The result implies that the bond markets are still manipulated by hedgefunds and other speculators, who might 'influence' rating agencies, so that yields go up. As yields go up, CDS prices go up, leading to huge profits for CDS buyers, who bet with these instruments on the default of periphery countries."

    It really is time for the immediate ban of CDS - as yields would immediately fall!

    It is about time that that is addressed by the press and blog writers and especially publically funded media!

    It is unbelievable that this connection cannot be made by financial correspondents!

  • Comment number 52.

    @RastaP26
    "One clear corollary of this is that the ECB has created a “false market” in Portuguese government debt. It appears to have forgotten that central banks are supposed to stop false markets rather than create them!"

    Hang on a minute. You do not believe that there was a fair, transparent market beforehand? I have never come across a market which is as manipulated as the bond market - before the ECB intervened.

    The ECB should, of course, intervene more, to bring down yields to a say 5% for Greece, 4.5% for Ireland and 4% fopr Portugal. Then the crisis would be over immediately!

  • Comment number 53.

    hi Robert, it would be nice if you could correlate the interest rates been paid by these countries and our own (£120million per day ?) and the impact on both current and future national wellbeing. So, rather that just go on moaning about the cuts - put them in the context of the current and future economic climate. Perhaps some kind of a visual aid such as the swingometer used by Peter Snow at election time to convey a picture of "so much debt carries so much cuts" etc:-

  • Comment number 54.

    @ 42 NorthSeaHalibut.
    Unless I'm missing something in your argument, don't you agree that Debt demands interest of some kind, and that this can be too large to be returnable?
    The 1948 NHS example hardly supports your argument. It's been propped up from elsewhere, throughout its history.
    I have been saying, and will say it again:) - Create a Sud-Euro & a Nord-Euro. It gives the PIGS a chance, and the northern banks probably don't even lose. The Sud-Euro is worth (say) 0.8 Nord-Euros, but assets would shift north to begin with, offsetting northern losses (and worsening southern losses but the 'devaluation' would accommodate some of that).
    Of course, there would be net losses of some degree, but at least the system would be rational.

  • Comment number 55.

    Breaking news: The Portuguese Government, on the last day before the dissolution of the parliament, has decided to apply for the EU/IMF bailout plan. Portugal's Finance Minister will make the official announcement, today at 8pm

  • Comment number 56.

    @AverageJoe various posts..

    I think you have been reading some of those funny websites again..

    "The federal reserve is simply the slave of the global banking cartel. It is there simply to do their bidding. In fact there is nothing 'federal' about it. Its just a private bank."

    Its not a private bank - it has elements of public and private ownership. The board of governments are appointed by the President and congress although the decisions they subsequently make do not need to be ratified by congress.
    It does have shareholders through members banks which are paid a fixed 6% dividend on their shares in return - in return they must invest 3% of their capital in the Fed. All other profits are returned to the US treasury - in 2010 the Fed made a profit of $82bn and paid $79bn to the US treasury.

    "All governments have been in debt since we were conned by the Bank of England into dropping government issued tally sticks (debt free)"

    Tally sticks also created a debt based system. Tally sticks were used to collect taxes. The monarch would sell the tally sticks for future taxes at a discount to receive money now. That is government debt - pledging future income for money now. It meant the next year tax revenues would be lower so expenditure had to be cut, taxes increased or more borrowed by selling the next's years tally sticks and pushing th problem into the future - sound familiar.

    Also I've read Steve Keen's 'Roving cavaliers of Credit Article' and cannot support what he says. I have actually entered into a dialogue with Mr Keen on his website under the same username as here and currently am awaiting more responses but for summary...

    His main supporting point is his chart that shows debt to M3 which I still maintain is a false picture (M3 is not all money and debt can be duplicated, see my non-bank comment) and I believe my comments on his site are clear and I have not had a satisfactory answer.

    Secondly, he shows a chart of annual average change in base money which shows that there is no special behaviour in the 1990s and 2000s (until QE). If his theory was true base money should have increased significantly in this period as debt increased sharply.

  • Comment number 57.

    @Seymore Froggs
    "- Create a Sud-Euro & a Nord-Euro. It gives the PIGS a chance, and the northern banks probably don't even lose."

    You forgot to mention, that in that scenario, Credit Default Swap owners (hedgefunds and speculators), the real PIGS of this "eurocrisis", would make a fortune!

    And you are also wrong about no banks losing out. It would create a massive financial crisis - probably bigger than the banking crisis in 2008. The taxpayers of the EU would have to pay for it all, and the hedgefunds and speculators would run away with massive profits.

    If you want to support something useful, support the immediate ban of CDS. That would alleviate the crisis.

  • Comment number 58.

    For all those saying they should default? Do you understand that even without paying debt interest that Portugal is spending more than it earns. The instant it defaults it cannot do this and the Portuguese government cannot pay its bills. Its main bills are the wages to its employees and benefits - so real people (teachers, doctors, policemen) will not get paid or will have their pay significantly reduced.

    There seems to be some perception that there is a choice between austerity and default. Austerity is a difficult path that will make people worse off while the economy rebalances and yes it might end in default but it might not. Default is just austerity on a dramatic scale that risks permenantly destabilising the country both socially and economically.

  • Comment number 59.

    @NorthSeaHalibut

    Actually, a health economy is funded by primary industry such as mining, farming and fishing. These people earn money from "nothing" and their own time (although you could argue they are running up a debt against the planet). They then pay for the goods manufactured from what they have dug out of the ground, and economic growth occurs.

    Then the idiots got hold of it all and persuaded people that they could have more than they really earned and the debt ridden society we have now ensued. BRICS are "funding" the world now with their primary and secondary (manufacturing) industry whereas in the developed world we now rely on tertiary (service) industry and join the entropy of borrowing money to pay for things to pay for peoples wages so they can afford to pay for things made by the Chinese from stuff mined in Russia, and we all blundered along happily with our eyes shut untill we ran into a wall and broke our noses (Ouch!)

  • Comment number 60.

    Doesn't look like a cheap bail out now. Another domino falls, Spain next?? Does Germany still have it's heart in the Euro? http://bit.ly/eofGqT

  • Comment number 61.

    56. At 19:15pm on 6th Apr 2011, spike1606 wrote:
    @AverageJoe various posts..

    I think you have been reading some of those funny websites again..
    ....... Okay you got me there, but I like non tinted goggles web sites; ie Zero Hedge, Max Keiser etc.

    "The federal reserve is simply the slave of the global banking cartel. It is there simply to do their bidding. In fact there is nothing 'federal' about it. Its just a private bank."

    Its not a private bank - it has elements of public and private ownership. The board of governments are appointed by the President
    (following advice from his 'advisors')
    and congress although the decisions they subsequently make do not need to be ratified by congress.
    (so not very democratic then)

    It does have shareholders through members banks which are paid a fixed 6% dividend on their shares in return - in return they must invest 3% of their capital in the Fed. All other profits are returned to the US treasury - in 2010 the Fed made a profit of $82bn and paid $79bn to the US treasury.
    (a drop in the US debt ocean)
    .......Come on. The government has almost no say over the Fed. I doesn't matter what it says on paper its a bank ran by the banks for the banks. The American polictical system is well dodgy. Massive injections of funds from business interests pay for the election campaigns, and presidents and politicans go out of their way to ensure those vested interests are kept sweet post election. Obviously you are not going to see this, incestuous relationship, highlightes across the front pages of main stream media, but its clear the system is more plutocracy than democracy.


    "All governments have been in debt since we were conned by the Bank of England into dropping government issued tally sticks (debt free)"

    Tally sticks also created a debt based system. Tally sticks were used to collect taxes.
    .....True, and that is what gives a currency its validity.

    The monarch would sell the tally sticks for future taxes at a discount to receive money now. That is government debt - pledging future income for money now. It meant the next year tax revenues would be lower so expenditure had to be cut, taxes increased or more borrowed by selling the next's years tally sticks and pushing th problem into the future - sound familiar.
    ...... I didn't know that, interesting. I still stand by my view that the issuing of our medium of exchange should be democratically accountable. It does not prevent a government borrowing as well if it sees fit. Although, I cant see why they would if it involved wealth creation, ie new infrastructure.

    Also I've read Steve Keen's 'Roving cavaliers of Credit Article' and cannot support what he says. I have actually entered into a dialogue with Mr Keen on his website under the same username as here and currently am awaiting more responses but for summary...
    ..... Excellent. A challenge to his views is a good way of testing his theory. I await his response with interest.


  • Comment number 62.

    Hi Robert,

    Talking about banks.
    Why could the banks not be allowed to fail? That is the question I would dearly like an answer to.

    My own reasons are as follows, I will stand correction should my assumption be incorrect.

    There were/are more people in UK with difficulties keeping up on their mortgage repayments than not.
    Should the banks have been allowed to fail many of those people would have lost their homes?

    I have no mortgage, it is repaid, I do not have creditcards or loans, I have been thrifty with my money, bought only when I could pay the required amount.
    The money I have in the bank earns very little interest, yet people who were profligate have benefited from the low bank rate, their mortgage repayments have reduced significantly, some are paying less than a third the amount they were paying prior to the credit crunch,
    Why should the people who looked after their money suffer at the hands of the profligate majority or is because they are in the majority they are being looked after?

    I am yours sincerely

    Ken Westmoreland

  • Comment number 63.

    So now British taxpayers will have another failed left-wing experiment to fork out for.

  • Comment number 64.

    58. At 19:26pm on 6th Apr 2011, spike1606 wrote:
    For all those saying they should default? Do you understand that even without paying debt interest that Portugal is spending more than it earns. The instant it defaults it cannot do this and the Portuguese government cannot pay its bills. Its main bills are the wages to its employees and benefits - so real people (teachers, doctors, policemen) will not get paid or will have their pay significantly reduced.

    There seems to be some perception that there is a choice between austerity and default. Austerity is a difficult path that will make people worse off while the economy rebalances and yes it might end in default but it might not. Default is just austerity on a dramatic scale that risks permenantly destabilising the country both socially and economically.

    ..........
    What do you suggest. The debt is unaffordable. The only hope of servicing it is a return to growth. Austerity will not assist a return to growth. In fact it will lead to the death spiral of the economy. I think that a move to the medium of exchange being issued by the state will save more, but it still may not balance the books. Only through more taxation, particularly at the higher levels can increase the spare income in the pockets of the majority of the population to stimulate more consumer spending, to bring back growth ie reduce the over accumulation of wealth that has taken place over the last 30 years).

    Personally I think growth, in a world of finite resources, is simply not sustainable. Richard Heinberg is going to publish a book later this year called "The End of Growth". However, capitalism needs growth to ensure stability (see Prosperity with Growth by Prof Tim Jackson). There is also plenty evidence that we have hit peak oil, and that energy costs inevitably are going to become more expensive, making growth even more difficult to achieve. A new economic model will be required as a result.

  • Comment number 65.

    @AverageJoe

    ".......Come on. The government has almost no say over the Fed. I doesn't matter what it says on paper its a bank ran by the banks for the banks. The American polictical system is well dodgy."

    I don't disagree with any of that. I think the whole point is that it is supposed to be free from government influence in its ongoing decision making - personally I agree with it because the American Political system is riddled with vested interests (dodgy!).
    There seems to be a view that the banks are some single entity that operate on their own completely independently from everything. I grant that there are small number of people within those organisations that earn huge amounts but they don't own the banks. We all own the banks through our pension funds or other investments. More importantly they store the money we have and facilitate the workings of our economy. The bank weren't bailed out to support the few rich people that earn good salaries - they were bailed out because the are a key part of the ecomomy and real people could have lost life savings and the system would have fallen over paralysing the system. The 'rich' may have lost more than the poor but there was a very real chance of the poor being left with nothing.
    Now we don't agree on the debt piece but fact that there have not been changes to massively reduce the chance of the system falling down is not acceptable.

  • Comment number 66.

    The western governments are morally corrupt and bancrupt. They (or we their citizens) have been living beyond our means and one by on they will default.

    The madness is best espoused by the USA where in March they spent 8.2 times what they received in tax revenues. Only one president tried to manage a balanced budget - Hoover. He only lasted one term. We, the US and all developed market governments need to live within their means.

    The way that the governments avoid doing what they have to do is to devalue their currencies (watch the price of gold & silver). This has the effect of reducing the value of the debt - sadly for those that have been savers whilst rewarding those that are net borrowers. They need to achieve the devaluation slowly and under a bunch of smoke screens so that markets don't spot it. Alll Western Governments will default....because the politicians will not do what is required because as a populus we will not let them.

  • Comment number 67.

    AverageJoe @64

    "What do you suggest. The debt is unaffordable"

    I pretty much agree - Portugal (and maybe us) are certainly on the edge and it is a rock and a hard place. But its not impossible - groups of people are remarkably flexible and provided an economic base is sustained economies can rebalance themselves over time.
    Good businesses (micro and upwards) can be steered through downturns and if they survive are in a position to drive growth. A default would provide a rapid shock to an economy and good businesses that could have survived will be destroyed - restarting from nothing is much more difficult than growing from something existing.

    The more we can get from rich people the better but there is a rate of taxation that while more punitive to an individual will reduce total tax take.

  • Comment number 68.

    Just to add AverageJoe - my comment on default was directed at those who think default is the easy option and it 'screws' the rich. The rich can afford to lose a lot more than the poor.

  • Comment number 69.

    1. At 12:07pm on 6th Apr 2011, Peter White wrote:

    I think this is a slow-motion carcrash that everyone could see coming. How long will it before they or other PIGS reach breaking point and drop out of the Euro. The sooner the better in my view.
    It makes a good backdrop for UK economics as well - this is the result of running a large, unsustainable budget deficit. Take note Mr Balls.

    ================
    I think you will find there is only one PIGS to go.

  • Comment number 70.

    Our relationship with the banks is like having a lodger in your house who abuses your kids and is sleeping with your wife; but you won't kick him out because his rent pays the mortgage.

  • Comment number 71.

    Old Labour is just beginning to see the light.

    http://www.michaelmeacher.info/weblog/2011/03/when-are-the-banks-going-to-be-reformed/

    It's a contest between the private credit system versus the peoples' cash system.
    The score is now 97 : 3 (as a percentage).
    We are way into extra time.
    That is the problem.
    Therein lies the solution. It must be done soon or more and more become debt serfs.
    The rest is counting angels on the head of a pin.

  • Comment number 72.

    [[[4. At 12:36pm on 6th Apr 2011, Straightalk wrote: ]]]]

    So you are happy to kiss goodbye to a chunk of your pension or other invested funds which is what the "bankers" were investing in the PIGS AA+ rated bonds. Is that right?

  • Comment number 73.

    [[[8. At 12:46pm on 6th Apr 2011, GaryMellon wrote:]]]
    So what will you do with that huge lump of metal 70 ft cubed i.e. the sum total of all the physical gold? Can't grow spuds in it as far as I am aware. Buy a patch of ground, cultivate it and then grow your own "whatever" and when its all too much you can be buried there. The big lump of metal will still be there and still be afirly useless.

  • Comment number 74.

    [[[9. At 12:47pm on 6th Apr 2011, NorthSeaHalibut wrote: ]]]

    You know better than that my impossible or at least very rare fishy friend. You are ignoring credit i.e. the suppliers willingness to provide things without being paid for a while and the consumers ability to buy without paying for a while. That is not debt that is creditworthiness and such honorable concepts still exist. Debt has its place but its not the be all and end all.

  • Comment number 75.

    I'm sorry if I'm gonna ofend you Perfect Beings from northern Europe, but you sent us the money all this years and we've sent you our fishing boats, our agricultural tractors, our factories, and built hotels and roads for you to spend your vacations. Want to blame anyone? Blame yourself.
    This a problem caused by the no-rules great Scotch of our finantial institutions and we are all being forced to pay.
    Again(made some post in some other article): I wish I was an Icelander.

  • Comment number 76.

    [[[ 21. At 13:49pm on 6th Apr 2011, James wrote: ]]]
    So you dont have any pension or other "investments " and are happy for just for depositors to be protected, is that right? WHY?

  • Comment number 77.

    These must be crazy times when asking for bailouts is considered a 'responsible move'!! And btw who pays for these massive bailouts? Oh that's right, it is us the common man! It is high time to improve this mad banking system which has led us here by separating retail and risk activities and putting an end to fractional reserve banking.

  • Comment number 78.

    [[[19. At 13:47pm on 6th Apr 2011, NorthSeaHalibut wrote: ]]]

    Your assertion that DEBT is the only way that Capitalism can work is RUBBISH. My dear fishy mate you have chosen to ignore EQUITY that is money invested by people (directly or indirectly) in the shareholdings of companies (public or private) in the hope of participating in the long term growth in value of the relevant company and in its profits by way of dividend payments. Thats is quite different to DEBT where the provider of RISK capital does so in the hope of recieveing some interest payments based on a % of the money lent and eventually the repayment of the capital sum.

  • Comment number 79.

    People who think this will mean prices in Portugal will now go down are deluding themselves as the exchange rate is predominantly affected by the economies of Germany and France. If anything prices are too expensive and will be kept there as they have no separate currency to independently devalue. Portugal, Greece and Ireland are just locking in stagflation and a high exchange rate for themselves for the next decade at least.

    if banks are forced to take a haircut on the debt (a partial default) then don't complain when the markets start pricing that into the yields for future auctions. Making all future debt more expensive

  • Comment number 80.

    [[[ 22. At 13:51pm on 6th Apr 2011, dungolfin wrote: ]]]

    I am not sure you have a clue what the implications are for your hypothesis?

    Just think about the implications of a soveriegn government even a small one defaulting on say 100Bn of debt AND deciding to drop out of the EURO. What currency are they going to use? Who will supply them with credit in this new worthless currency? How willl they repay the STILL EXISTING debts denominated in euors? Who will decide on the exchange rate between the euro and the new worthless currency. ETC ETC. Got it yet??

  • Comment number 81.

    63. At 21:20pm on 6th Apr 2011, sandy winder wrote:
    So now British taxpayers will have another failed left-wing experiment to fork out for.

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

    Substitute the word 'left' for 'right' and you are in the right (Capitalist) Ball Park. The fact that Global Capitalism is the Root Cause is lost on many people. Let's blame the symptoms instead - it is easier is it not. A debt based monetarist system is Capitalism in its purest form.

    In the meantime let's start another war we can't finish - 3 on the bounce now - because the bad guys are in charge of oil/gas and we can't have that can we?
    I mean we can't allow these Good/Bad/Indifferent Dictators -delete as per The Right Wing Loony Press supports at any given time - a free hand can we. They might want to develop WMDs. Especially when they got the know-how from UK/USA.

  • Comment number 82.

    Of course prices in Portugal will continue to rise - higher interest rates will mean greater need for still functioning businesses to draw in funds to service their debts and taxes will increase so's their government can ....service their debts and so on. Golf course fees? Hopefully they'll skyrocket - tourists if they've got money to holiday we'll take it off 'em as fast as we can.
    By the way Peter you got it right today, eh! So how long til Spain goes down? And what of Italy - their debt is enormous. Then again so's Germany's if we fall back down into recession. Isn't gloom mongering fun!!
    Meanwhile in Britain....oh, but it's pretty much the same here, isn't it? Anyone for tiddlywinks?

  • Comment number 83.

    #69 Martin wrote:-
    "I think you will find there is only one PIGS to go."

    If i remember correctly it was PIIGS - the second "I" being Italy.

    "Spain economy gets IMF vote of confidence"
    one of todays headlines. Reminds me of the phrase from the football world "The chairman has every confidence in the manager."

    "Silvio Berlusconi 'Ruby' sex trial opens then adjourns"
    also one of todays headlines, Italy it seems has today started down the road to political instability.

  • Comment number 84.

    The comments make for much more interesting reading here than the article. I'm pained by the big divide in opinions, and the narrow minded approach to debate.

    For those on the far left here - who is worse here, the government that spent 30% more than it earned (don't be fooled by the deficit: GDP ratio.. government tax receipts are usually about 1/3rd of the GDP), or the banks that lent money to these governments? They're both wrong, victims (and happy participants at the same time) of a system that was bound to crack. At the end of the day, one cannot indefinitely spend more than one earns. And this isn't the fault of 'money', or the 'banking system'. It's basic common sense. If you had a barter economy, you couldn't eat more than what you grew or could 'buy' indefinitely.

    To those on the right: governments frequently spend on populist and socialist measures that bankrupt them.. however much of the anger that is directed towards 'big banks' actually stems from a dislike of the single minded pursuit of money (often with a disregard for fundamental human values) and the huge inequalities that exist - not just in income, or wealth distribution, but also in economic/ social opportunities. Our world can go a long way in being fairer, and status quo is going to lead to social anarchy. Sadly, all the governments seem hell bent on taking back the world to where it was pre-crisis, and i suspect that is what initially made these leftists mistrust governments.

    Why is there no one out there addressing the legitimate grievances of people across the political spectrum and coming up with a world that works for everyone?

  • Comment number 85.

    7. At 12:45pm on 6th Apr 2011, Mark Wheeler wrote:
    Mark,
    Do you think property prices will go down?
    Yes everytime i visited Portugal it always suprised me how much better they lived than me in the US and i make a decent living as a programmer and my wife a chemist....
    I too feel sorry for the Portuguese but you cannot live like a king on borrowed money and not expect to have to pay sooner or later. It's is unfortunate that politicians fed the people those illusions in order to get themselves elected.

  • Comment number 86.

    84. At 01:28am on 7th Apr 2011, Saurabh wrote:

    You make the most sense. But i fear that nobody is listening.

  • Comment number 87.

    Find me a pro EU comment. None. People up and down the land are fed up with the country being aligned into EU conformity. In one way or the other, one indirectly is paying higher taxes into EU coffers for bailing out badly managed states......The time is rife, WHy doesn't Cameron now give the UK an referendum on the EU exit ? (because he can't handle it and is worried stiff). It seems no-one in UK politics has the impetus to press an ultimatum on this issue, in the same way as other protests have influenced the mainstream.

  • Comment number 88.

    Is it worth considering what would have happened to these countries if they did not have the euro zone to fall back on Where will the UK go for help ?However the real problem is the EU grew to quick just so as we and other countries could have cheap labour

  • Comment number 89.

    Is it not time to let the banks - irrespective of what nationality they are - take

    the 'hit', as they would have to do with most other customers who have no ECB to bail them out?

    The banks must bear some share of the blame, they pay the credit rating agencies, who downgrade a countries creditworthiness, leading to higher interest due on future loans, which in turn leads to problems in repaying debt, which leads to downgrading credit ratings again (and more profit for the banks)... ad infinitum.

    So would the best message these and other EU countries could send to the banks, stop paying the credit ratings agencies and to default on their debt, forcing the banks to take notice, act responsibly, renegotatiate at sensible rates and stop lining their own pockets (and the ratings agencies) endlessly?

    If the banks were serious (ha ha) about helping countries economies recover, they would act wisely (even more laughs)!

    And the UK government wants Banks to "help small business startups in the UK"?

    Just like a bowl of piranah will "help themselves"!

  • Comment number 90.

    We all are in it!

    MPs AND Bankers are not and so is BBC! PM: come off empty words start with your idea of BIG SOCIETY with our local and national politics. Of late we hear that BBC have so much money that they do not know what to do with it. Why we need to pay millions when jobs can be done at a fraction by the big society. We never use to pay for local councillors and now we pay millions! We can have MPs at half the cost. VERY CAPABLE AND WORTHY PEOPLE WOULD BE HAPPY TO OFFER THEIR SERVICES FOR NOTHIND.

    We can avoid the fate that Ireland and Portugal have been subjected to if WE ARE ALL IN IT TO-GETHER!

  • Comment number 91.

    Portugal: Bail-out finance looks cheap?
    Really? Just wait till the ECB puts the interest rates up!

  • Comment number 92.

    @57 matt_us

    Oppose Credit Default Swaps? Easy to say, but meaningless in practice.
    CDS won't make money. You just say, the currency is Sud0Euro.
    As for "creating massive financial crisis," precisely what wouldn't happen.
    Of course you'd like the German car workers to go on paying for everything in the Eu, having paid to unify E & W Germany, having paid to..etc etc.
    I simply dislike the Moral Hazard implied in what's happening and what perhaps you'd be happy with.

    I stick by my argument. Sorry.

  • Comment number 93.

    It's always been obvious that countries such as Ireland, Portugal and Greece would struggle to hold their own financially in the EU - they simply don't have the industrial or services sector bases large enough to create and then sustain a viable economy.
    We'll face the same problems with the former eastern bloc countries as well. It's all very well talking about building their economies in the post-Soviet era, but most of them need building up from scratch, such is the scale of the problems created there since 1945. They see the EU as one big piggy bank and they want to get their noses into the trough, a trough financed by taxpayers' money. Even the Irish people are sensitive enough to realise the embarrassment and loss of face it's costing them. And it's little wonder Angela Merkel in Germany is facing a revolt from German voters over the whole bail-out issue.

  • Comment number 94.

    Those that argue for continuing on our course of deep and rapid spending cuts need to look seriously at where this took the Irish economy.

    For every Euro the Irish reduced government spending by, several times that amount was sliced off their aggregate demand, which led to the economy rapidly contracting so that tax take fell sharply whilst unemployment rose, driving up government spending.

    Result - THE IRISH DEFICIT WENT UP - NOT DOWN!

    The UK deficit today is completely different from the very similar sized one that Ken Clarke left for the last government to deal with.

    Firstly a large part of the debt was to bail out the banks, not ordinary government public spending per se at all.

    Secondly the UK now has an asset approaching £100 Bn in publicly held shares/loans to the banks to set against the deficit.

    So would you asssess the credit worthiness of an individual, a company or a nation by only looking at the liabilities without even considering its assets? You'd be an idiot if you did - but that's precisely what those who only go on about the DEFICIT are doing when they ignore the bank holding ASSET.

    The substance of the criticism of the level and speed of the spending cuts is that the deficit arose from the credit crisis and was not caused by domestic economic factors at all and just as you wouldn't try and pay off a new mortgage in four years by starving your family to do it, we should recognise that over time the UK holding in the banks can be unravelled and the money used to pay off a large part of the debt - an option not available to Gordon Brown when he came into office faced with the same level of debt then as now.

    For George Osborne's policy to work the economy must perform a miracle that no other economy in the developed world has ever achieved EVEN IN PERIODS OF STRONG WORLD GROWTH.

    +2m new private sector jobs
    Exports must rise by a third
    $400 Bn+ new investment in manufacturing capacity

    If these figures are not acheived the UK will follow Eire into the spiral of cuts, rising public deficit and personal debt levels which we will not be able on our own to escape from.

    What does that mean for you & me?

    House prices collapse to less than half what they are now.

    Interest rates hit 10%+

    Petrol is over £5 a litre - so is a loaf of bread.

    Unemployment passes the 5,000,000 level and goes on rising.

    Sterling falls to parity with the Euro - and goes on falling.

    So before you blindly support the current economic policy, pause and think about the RISK that is being taken and the LONG ODDS of it succeeding.

    Even if you blame the last government for everything, are you seriously prepared to give the coalition a blank cheque to take this sort of gamble with your family's future?

  • Comment number 95.

    #78. At 23:35pm on 6th Apr 2011, ObserverinMonmouth

    And tell me oh wise one, where does equity come from? How does one acquire equity, with what is it obtained and what is the source. Do the majority of investors use their own money?

    I told you it was a simplistic formula dumbed down from my days of learning to make a statement, the whole formula includes investments from third party shareholders etc and a myriad of other factors, its a socio-economic structure, however the equation always comes back to net debt/savings. The sheer numbers of individuals seeking input into parts of the equation with restricted share of profit for wages and savings the result always returns as net DEBT.

  • Comment number 96.

    Good and helpful posts @ #84 and #85. Thanks.

  • Comment number 97.

    How can Portugal's request for a bailout be credible when their Parliament and people have and will say NO to further austerity measures to close the budget deficit?

    In this case, it is clear from the outset that Portugal won't be able to meet the interest, let alone repay the capital, of any bailout. What will happen is that whoever contributes to the bailout won't be getting their money back. So why should Portugal get a bailout? It makes no economic sense.

    It makes no economic sense because the Euro from the outset was a political project that defied economic logic. Until reality steps in, more and more loans are going to be poured into more and more countries with no prospect of the loans ever being repaid. That is madness. The question is how long that can go on before the whole Euro system collapses under its own debt mountain.

  • Comment number 98.

    83

    Italy has been relatively politically unstable for some time, plus Berlusconi has had more trials previously than he has notches on his bedstead, or for every notch there is a trial?

    One of the folly's of the EU seems to be the thinking that by bringing in the southern European countries, that they would mend their ways and behave like "responsible" northern partners.

    Except they haven't and the North is not as responsible as it thinks it is either.

    Now the Eastern European countries are involved as well...

  • Comment number 99.

    Those who did the lending have to loose some money, to teach them a lesson. And those that did the borrowing have to loose some money, to teach them a lesson as well. Those who never lent any money nor borrowed any should get a little reward.

    Right. That's all there is to say about this. Move on to the next topic.

  • Comment number 100.

    The level of interest being charged is a disgrace. Time that legislators TOLD the financial institutions just how much they were going to be given - there is no reason why they should be permitted to carry on regardless whilst everyone else is losing out. When times are hard, NOBODY is going to get as much as they would like...

 

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