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Portugal to muddle through - for now

Robert Peston | 14:29 UK time, Thursday, 24 March 2011

It looks to me as though Portugal will muddle through without a formal EU bailout for a while longer, for two reasons.

Portuguese parliament, Lisbon

First, and forgive the statement of the stupendously, blindingly obvious, a sovereign state can't be rescued if it has not asked to be.

And Portugal's teetering administration, now serving in caretaker capacity, has not requested the lifeboat.

Second, even if it did tell other European governments that it needs help, at this stage all it would get probably is very short term "liquidity" support from the European Central Bank (ECB) - or rather a good deal more of that.

For some time, Portugal's government has been borrowing from its banks by selling them bonds, which in turn have been swapping the bonds for cash from the ECB (see my earlier notes on this).

And the ECB has also been endeavouring to put a floor under the price of Portuguese bonds, by buying them in the secondary market.

The ECB is increasingly uncomfortable about propping up the Portuguese state in this way. It doesn't do wonders for its reputation as a monetary purist. But it can probably stand the humiliation a while longer.

The understandable consensus among European leaders is that it would be pointless negotiating a long term bail out with Portuguese ministers who may not be in office in a few weeks.

That is the lesson for EU leaders of their Irish rescue mission - where they agreed a bailout plan with the previous government only to see the new government try to unpick it.

With a Portuguese general election looming in a few weeks, far better to negotiate the rescue loans - and corresponding measures to strengthen Portugal's banks and public-sector finances - after a new government has been chosen by Portugal's people.

So, as is the way with the eurozone's fiscal and banking disease, each new shock is met with aspirin and sticking plaster, rather than substantial major treatment and rehabilitation.

There is the small matter of €4.23bn (£3.7bn) that Portugal has to repay to lenders, holders of its bonds, next month.

But, as I've said, some kind of ECB temporary fix seems highly likely, according to official sources.

As for when the proper rescue comes - and officials tell me it certainly will come - the scale of loans may be around €80bn or £70bn, provided by eurozone and IMF.

Britain's contribution will be minimal and indirect. The UK is exposed via its 12% implicit share of the EU budget.

Only in the event that the Portuguese financial crisis exhausted the available money in the eurozone's bail out fund - which it won't - would the UK become liable.

But if other bigger eurozone states run into difficulties (you know the names and flags) Britain could yet find itself exposed.

Comments

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  • Comment number 1.

    Well at least someone has now mentioned it.

    "For some time, Portugal's government has been borrowing from its banks by selling them bonds, which in turn have been swapping the bonds for cash from the ECB (see my earlier notes on this). "

    That's a PONZI scheme Robert.

    "Britain's contribution will be minimal and indirect. The UK is exposed via its 12 per cent implicit share of the EU budget."

    ...and 12% of Spain, and 12% of Ireland, and 12% of Greece, and 12% of Italy...........do you get the picture?

    The great PONZI now has more drawing down on the scheme than paying into it - Madoff is probably screaming from his cell - "This is it folks, this is when it fails"

    ...but this is merely 'another left wing prediction' which has come true - I expect the capitalists will buy the stock market today in an effort to obliterate this crisis from their minds.

    One born every minute.

  • Comment number 2.

    Oh Dear - Greece Can't Pay and soon Won't Pay.
    Ireland Can't Pay and slightly later Won't Be Able to Pay
    Portugal Can't Pay
    Spain Can't Pay (Oh and this one is a bigger than all 3 put together)

    Downward spiral and even though we have our own currency we are locked into the effects of the above for better or worse.

  • Comment number 3.

    When the ECB and BoE own the main part of European sovereign debt can we all go and get haircuts please?

    I suspect this is the plan. Hold on tight folks, 10% RPI coming our way.

  • Comment number 4.

    ....and silver just hit an all time high - do you think the capitalists are starting to understand 'value' yet? - or are they still confused by the fact you cannot eat Silver?

    Meanwhile all the congratulation of the chancellor - did anyone consider this?

    https://www.telegraph.co.uk/finance/economics/8403896/Moodys-warns-Britain-over-triple-A-credit-rating.html

    Cue the posts about 'they can't rate anything' - which may be true - but that doesn't stop people (and more importantly fund mandates) listening to them!

  • Comment number 5.

    Ouch.

    https://www.bloomberg.com/news/2011-03-24/portugal-is-said-to-need-as-much-as-99-billion-in-any-financial-bailout.html

    15% of 99 - I make that about $14.85 Billion.

    Remember folks - before the Capitalists blame the socialists (again) - that money is BANK DEBT.

    The debt of the bankers was taken on by the governments and 'someone' still has to pay it off.

    Capitalists forget that as their history books only go back as far is convenient for their latest argument!

  • Comment number 6.

    @ writingonthewall

    Why is the rescue fund a Ponzi scheme?

    The credit markets are not working, because everybody wants to cash in on their Credit Default Swaps they hold for Greece, Ireland or Portugal, which bet on the default of those countries. That is mainly hedge funds. They probably pay rating agencies to downgrade peripherie countries and plant panic stories in the press. That has an effect on the provision of credit to these countries, especially if the big bond market players are colluding with the hedge funds.

    So a rescue fund is absolutely the right response - better would be to allow them to manipulate yields downwards, as the ECB wanted the EFSF rescue fund to do.

    And even better still, of course would be to immediately ban CDS and leave hedgefunds and speculators high and dry! A haircut for hedge funds - by confiscating CDS contracts - that is what is needed.

  • Comment number 7.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 8.

    @M_T_Wallet

    Am I right to interpret your comments as follows?

    You also rather see Credit Default Swaps banned immediately, rather than allowing greedy hedge funds to stuff their pockets through unjustified profits from this manipulated "Eurocrisis".

  • Comment number 9.

    All this user's posts have been removed.Why?

  • Comment number 10.

    Now, now, Robert.

    When you say "First, and forgive the statement of the stupendously, blindingly obvious, a sovereign state can't be rescued if it has not asked to be"....

    You are surely not implying that when Ireland was forced by the EC to take a bailout, that it was not indeed "a sovereign state"?.....

    Surely not.

  • Comment number 11.

    6. At 15:32pm on 24th Mar 2011, matt_us wrote:

    "@ writingonthewall

    Why is the rescue fund a Ponzi scheme? "

    ...because the 'scheme' is funded by new (current) investors. In the beginning these were all the EU member states - except Greece of course (who were the first to default - oh that's what this is BTW, no matter what the EU say)

    As time has gone on the 'payers into the scheme' have diminished and started taking money out (bailouts). The ECB cannot actualluy print money - so the loans are being funded by existing ECB 'investors' i.e. Germany and France.

    The problem is (as with all PONZI's) is that nothing is being produced, all that's happening is money is moving around, being lent, being borrowed.

    This is how all ponzi schemes go in the end, the only difference is that ponzi schemes operate on greed - this one operates on fear (the fear of default).

    You can blame CDS speculation all you want (and quite rightly - as I know for a fact that in the event of "sovereign topple" - those CDS contracts are worthless as the counterparties will be long gone) - but the bailout doesn't 'fix' anything - it just puts it off for a little longer.

    Want proof? - see Greece - are they 'getting back on their feet' following their bailout? - or are they dying and the news has just stopped reporting it?

    I was there last year - I can assure you it's the latter.

    I understand the EU thinks it's doing a good thing - but eventually the German and French people will have their say and the plug will be pulled on the whole scheme.

    Credit to the Germans - they have laster longer than I thought they would...but then the people haven't had their say yet as there haven't been any major elections yet - nor in France, but that's going to change soon...

  • Comment number 12.

    7. At 15:38pm on 24th Mar 2011, M_T_Wallet

    "I don't agree with you on everything but I do agree we are heading towards a society as per the film Rollerball (the old version with James Caan)"

    Quality film - I'll get my skates on..

  • Comment number 13.

    ...oh and Moody's just downgraded 30 Spanish banks.

    Never rains but it pours eh?

  • Comment number 14.

    Muddle, Fuddle = Trouble

    How can the finances of countries be run is such a confusing way.

    If i was in the market for government bonds , Portugal would not be on my list , because in 3 months time they may well be "Junk" status.

    No company in the world could be financed like sovereign states , because they don't have tax payers to bail them out.

    This fiasco is a lesson to all countries (Incl the UK) to manage their finances prudentially with sufficient RESERVES for the unforeseen.

    By the way ,RESERVES are not there for the pummeling of foreign nations , because they have a leader we don't like.

  • Comment number 15.

    lefties and marxist fantisists - please don't expropriate the impending default of peripheral Europe as some kind of "victory" for your barely credible economic "theories". Greece WILL default, Ireland probably WILL default and Portugal MAY default because each country has pursued unsustainable state spending policies which are at odds with their tax base. They share the same level of economic leadership as the UK did in the 70s - remember the IMF bailouts? Perhaps it seems a few of you might need to dust off your history books.

    Also, don't confuse a country's default with "the end of capitalism". Default is an intrinsic and cleansing part of capitalism. Its just that socialists and marxist fantasists can't understand that concept.

    Finally, of course capitalism is a form of Ponzi scheme - it is based on confidence after all. However, while you're busy worrying about that, I don't wish to cause extra alarm, but one day the sun will expire and all life on earth will end too.

  • Comment number 16.

    11. At 16:02pm on 24th Mar 2011, writingsonthewall wrote:
    6. At 15:32pm on 24th Mar 2011, matt_us wrote:

    "@ writingonthewall

    Why is the rescue fund a Ponzi scheme? "

    ...because the 'scheme' is funded by new (current) investors. In the beginning these were all the EU member states - except Greece of course (who were the first to default - oh that's what this is BTW, no matter what the EU say)
    ==========================================

    You are right that it is a Ponzi scheme but who is the lender of last resort who can absorb the losses, defaults and haircuts by "printing" their way out? Yes the central banks.

    Basically reckless lending against property was underwritten by the banks, in turn underwritten by sovereign governments, in turn underwritten by central banks.

    You are right that until now that the ECB has avoided engaging in any quantitative easing but I suspect, as controller of euro money supply, will find ways around the rules in order to be buyer of last resort of euro sovereign debt when too-big-to-fail Spain and Italy begin to falter.

    This does not come without a price. The price being rampant inflation as the money supply is increased without a corresponding increase in value of economic assets. Understandably the Germans have been historically wary of inducing inflation and this will be the flashpoint. But arguably, they have their own cross to bear for the reckless lending to the periphery that their banks engaged in.

  • Comment number 17.

    Hi Robert,
    hope that you are correct and that we are not "all in this together" (I mean with Portugal, of course I would hug a UK banker if they happened to bop it and have remembered to leave 10% of their estate to NSPCC/Barnados...... let's have a "group will reveal" by UK resident Goldman Sachs bankers for that instant feelgood factor).
    Portugal as you point out is not in the best of shape, and hopefully will quickly sort out the government before ANYONE starts throwing money real or otherwise. The firefighting approach you have outlined is sensible.

  • Comment number 18.

    Glad to see we are now focusing on our very financial existance. One hopes a number of scenarios are being played out by our ruling elite to avoid total meltdown, or in some ways worse, allowing the hendge funds to swindle billions from the working people of Europe.

  • Comment number 19.

    "But if other bigger eurozone states run into difficulties (you know the names and flags) Britain could yet find itself exposed."-RP

    If for this reason only , the UK government needs to be seen to be reducing the public finances deficit down to a position of long term affordability. At the moment we can borrow cheaply, but if that changes, even more cuts will have to be made . Labour's plan of expanding the economy is simply unworkable , the bond market would simply not provide additional bonds at affordable interest rates. QED Portugal's problem...

  • Comment number 20.

    Gee, writingsonthewall, you are a bit pessimistic, aren't you?

    @writingsonthewall
    "Its a Ponzi scheme because the 'scheme' is funded by new (current) investors."

    Well, most governments pay off old borrowing with new borrowing, if the economy in the end grows by more - everything is honky-dory - no Ponzi scheme. At the moment, the Greek economy grows by less than the new debt they took on. In fact it shrank by 4,5% last year. But that is only an adjustment, as the Greek economy restructures itself. In the end it will grow more than its debt will grow. That is the idea!

    @writingsonthewall
    "those CDS contracts are worthless as the counterparties will be long gone"

    What, there is about $80 billion betting on the default of Greece, (gross CDS contracts outstanding), and all these punters believe the bookies can't pay up, if their winnings come in - and Greece has to restructure? You better think again. These bookies will be AAA rated banks which are too big too fail - and will be rescued by the taxpayer. Otherwise nobody would have bought these CDS.

    @writingsonthewall
    "Greece - are they 'getting back on their feet' following their bailout? - or are they dying and the news has just stopped reporting it? I was there last year - I can assure you it's the latter."

    What - you were you inside the Greek government offices where the IMF and EU economists hang out - and looked over the shoulders of their Greek colleagues? Or just on the beach?

    Greece is making incredibly good progress - raising taxes - reining in expenditure. Could do more - maybe - but they are on the right path. Says the IMF and their latest March report from last week.

    @writingsonthewall
    "I understand the EU thinks it's doing a good thing - but eventually the German and French people will have their say and the plug will be pulled on the whole scheme."

    The Germans are not stupid - they first of all will campaign for banning CDS - so that nobody has an interest in countries going bust. Then they will make sure that a cheap long term financing facility is in place to help Greece. They will use the rescue fund to bring down yields and provide guarantees at very cheap cost - so that investors will buy Greek bonds.

    Than they will make sure that current account deficits are evened out. They only have to go on holiday to Greece, and the Greek economy would be booming. They only need about 15% more holidaymakers to get a boost to their GDP of 6% or more. That is easy.

    The choice for Germany and the other Eurocountries running current account surplusses is therefore surprisingly simple - go to Greece on holiday, if you want your money back. Win-win situation - really!

    I take it you support banning of CDS, though?


  • Comment number 21.

    We need to remember one thing - there is no "God" given right for countries to be able to borrow money. If a country is so much in debt (like most countries are) that as a lender you have NO or very little chance of being repaid why would you lend the money??

    If you don't want to be at the mercy of how bondholders perceive your creditworthiness don't spend more than you earn! It's a simple (and only) solution but requires people to give up the benefits they currently enjoy (also not a god given right). It will take a brave government to follow the course (Osborne is already wavering by offering the tax breaks/reductions yesterday) and they will be hated for it, but ultimetly the next generation will thank them for it (or at least benefit from it).

  • Comment number 22.

    15. At 16:28pm on 24th Mar 2011, a_sensible_comment wrote:
    ==================================

    This is probably the most sensible comment you have made to date. Well done. A couple of points though:

    "Also, don't confuse a country's default with "the end of capitalism". Default is an intrinsic and cleansing part of capitalism. Its just that socialists and marxist fantasists can't understand that concept."

    Of course not, but the theory isn't really working in practice. QE and state subsidy has prevented the true weaklings from default, namely over-stretched property speculators and banks. Capitalism has become a type of institutionalized welfare system for the rich. In practice it always was.

    "Finally, of course capitalism is a form of Ponzi scheme - it is based on confidence after all. However, while you're busy worrying about that, I don't wish to cause extra alarm, but one day the sun will expire and all life on earth will end too."

    I'm glad you recognise it for what it is. Unfortunately growth is finite and confidence is becoming increasingly in short supply so I suspect the end will happen sooner than the expiration of the sun.

  • Comment number 23.

    15. At 16:28pm on 24th Mar 2011, a_sensible_comment wrote:
    ' Default is an intrinsic and cleansing part of capitalism. Its just that socialists and marxist fantasists can't understand that concept.'

    Replace 'understand' with 'find it acceptable' and i might agree with you on that particular point. In the meantime...just continue to worry about yourself and accept the status-quo...i assume it is in YOUR interest to do so.

  • Comment number 24.

    @a_sensible_comment
    "Greece WILL default, Ireland probably WILL default and Portugal MAY default because each country has pursued unsustainable state spending policies which are at odds with their tax base.... remember the IMF bailouts?"

    What are you talking about - GB had the IMF in and did not default - same will happen to Greece, Ireland, and Portugal.

    The only defaulters in this "eurocrisis" will be hedgefunds and speculators, who will go bust, as soon as they have to buy bonds to cover their "naked" CDS contracts. (at the moment CDS investors do not have to hold bonds these CDS are supposedly insuring, but EU legislation is on the way to disallow that)

    That means for everyone who scraped 100,000 together to bet on the default of Greece today (odds about 10:1), soon they will have to find another 1,000,000 to buy the bonds.

    That will have one of two effects on anybody betting on a default of the euro-peripherie:

    1) The speculators will make losses, because they cannot afford to buy the bonds, but still have to pay for their 5 year CDS contracts

    2) The speculators will make losses, because if they can buy the bonds, the bonds will shoot up in value and the yields come down.

    Either way, that would be the end of the "eurocrisis" - and we can then sort out the real problem - unbalanced current accounts in good time.

    And send the speculators and hedge funds back to the Cayman Islands.

  • Comment number 25.

    Germany and some of its northern neighbours should leave the Eurozone and create another currency - the "GrosseMark". The value of the Euro would fall and help the remaining Eurozone countries to climb out of debt, but europhile politicians would find such a solution unthinkable.

    But whenever was the working of the European Union based on common sense?

  • Comment number 26.

    19. At 16:36pm on 24th Mar 2011, hughesz wrote:

    Labour's plan of expanding the economy is simply unworkable , the bond market would simply not provide additional bonds at affordable interest rates. QED Portugal's problem...
    ==================================

    The constraint is not how many bonds you can sell to the market at whatever interest rate because QE can circumvent both of these issues. The constraint is how much inflation can be absorbed by the resulting increase in money supply, and that becomes a political issue.

  • Comment number 27.

    oh dear pound is down 1.5 percent on euro.....
    investors like GOs budget less than Portuguese default?

  • Comment number 28.

    15. At 16:28pm on 24th Mar 2011, a_sensible_comment wrote:

    "lefties and marxist fantisists - please don't expropriate the impending default of peripheral Europe as some kind of "victory" for your barely credible economic "theories"."

    What's the matter capitalist - don't like losing? It seems the economic theory of surplus value and the continued crises of capitalism is holding it rather well at the moment.
    It's a shame that monetarist theories which state that the control of the money supply is how you control the economy - can't say the same.

    "Greece WILL default, Ireland probably WILL default and Portugal MAY default because each country has pursued unsustainable state spending policies which are at odds with their tax base."

    ...nothing at all to do with their banking sectors needing bailing out coinciding with a massive credit squeeze which took them all into recession and destroyed tax receipts (the Governments income). That was just 'coincidental' - right?

    How can the sovereigns spending be 'unsutainable' - unlike a company their future is.....forever, and their workforce is......unlimited and their income is......limitless.

    You really need to stop thinking of nations like businesses - it's a flaw in your thinking. That's why you panic about Government spending - you're getting less and less credible by the day.

    "They share the same level of economic leadership as the UK did in the 70s - remember the IMF bailouts? Perhaps it seems a few of you might need to dust off your history books."

    My history book is always to hand - and I look through history and I see decades and decades of public sector debt - but it's only now there's a huge scare about it - I wonder why?
    Speaking of history - can you show me a time when the UK wasn't running a deficit? (surpluses created through asset sales do not count - anymore than you show a 'surplus' in your current account when you move house)

    "Also, don't confuse a country's default with "the end of capitalism"."

    We're not - the collapse of capitalism comes in many areas - private debt, public debt, and overproduction. Only simpletons would make the association you just did.

    "Default is an intrinsic and cleansing part of capitalism."

    Brilliant - absolutely classic - so that means I can walk away from my mortgage - I'm just 'cleansing' nothing else. Once again you fail to understand that business is based on TRUST and the cleansing you refer to undermines that trust - ergo, no business.
    Also at the end of that 'cleansing' there is a lender - and what happens to lenders when too many borrowers 'cleanse' themselves??

    "Its just that socialists and marxist fantasists can't understand that concept."

    What concept? that default is inevitable - I think most people understand that no matter which way they lean. Even the free market loonies have realised that this is not going to end well.

    "Finally, of course capitalism is a form of Ponzi scheme - it is based on confidence after all. However, while you're busy worrying about that, I don't wish to cause extra alarm, but one day the sun will expire and all life on earth will end too."

    The sun will 'expire' in about 5 billion years when it leaves it's main-sequence evolution, however PONZI schemes don't last anywhere near that long.

    In fact the going period of time for a FIAT money system is a few hundred years. We have been running with this one since the 1970's.

    Please try to get things into perspective - otherwise you will create uneccessary panic.

    I must say the longer this crisis drags on - the less sensible you become. Maybe you're starting to ask the questions you should have asked a long time ago.

    Getting angry 'with the left' will not solve your problems I'm afraid.

  • Comment number 29.

    @Quasim
    "If a country is so much in debt (like most countries are) that as a lender you have NO or very little chance of being repaid why would you lend the money?? "

    Ok - here is a question for these who consider Portugal (smaller deficit than UK in 2010) junk status:

    How big was the UK government debt in 1947 - compared to GDP. Just under 80%, as Germany. Just over 80% as Portugal. Just over 140% as Greece?

    None of the above. In 1947 the UK government debt was an astonishing 243% of GDP. All due to the loans the Americans gave Britain to fight the War, of course.

    Now - did anybody make a fuss then? Were people writing into Robert Peston then - saying the end is nigh? Or did they actually introduce the NHS, build loads of houses for returning troops, restructured the economy to make civilian rather than war goods, improved public education, improved the welfare state, etc, etc.

    So all these doom-mongerers are obviously wrong and have not got a clue what they are talking about. If Britain did all that - and paid back its loans to the US - it will be an absolute doddle to do that for Greece, Ireland and Portugal now. Everybody is richer now - these countries were the main beneficiaries of the EU and they will have to tax their people a bit more and bingo - that's it.

    End of eruocrisis and end of the CDS speculators. If everybody can get that into their heads - the BBC commentators included - that would be a big step forward!

  • Comment number 30.

    16. At 16:31pm on 24th Mar 2011, Reticent_Trader

    But can the ECB print? - isn't there some EU law banning it? (although to be fair there was one banning the bailouts too!) - and what about the Germans - they are not in a situation requiring printing - they would blow up - and there's nothing that scares the Germans more than reminders of Wiemar as you say.

    ..but the bind is that the EU is bailing out German banks - so it has little choice. Like most nations they are facing a 'lose lose' situation so the end game is inevitable.
    Just as ponzi schemes always collapse - then so will this one - the only debate is how much damage will be caused.

    Still, apparently this is 'just a bailout' - it doesn't mean anything, just like this was 'just a recession' and the banks failing was 'just a run on a bank' - if you're outlook is based on playing down everything then the Japanese Tsumani was 'just a wave' and Chernobyl was 'just a reactor shutting down'.

  • Comment number 31.

    24. At 16:55pm on 24th Mar 2011, matt_us wrote:
    The only defaulters in this "eurocrisis" will be hedgefunds and speculators, who will go bust, as soon as they have to buy bonds to cover their "naked" CDS contracts. (at the moment CDS investors do not have to hold bonds these CDS are supposedly insuring, but EU legislation is on the way to disallow that)
    ==================================

    Matt, interesting analysis. I suspect however that George Osbourne is working furiously to exempt the UK hedge fund industry from the upcomming EU legislation on this matter. It is too big a thing for them to sign up to. I know that Angie Merkel is strongly in the other camp because the alternative would be haircuts for the German grannies, but I suspect some kind of quid-pro-quo stitch up will be made, and I think it may take the form of the ECB engaging in some form of QE and resulting inflation. It depends on the German's stomach for it.

  • Comment number 32.

    26*

    Fair point..

  • Comment number 33.

    a_sensible_comment wrote:
    ' Default is an intrinsic and cleansing part of capitalism. Its just that socialists and marxist fantasists can't understand that concept.'

    I bet they understand and look forward to it - as hedgefunds and speculatos who are hoping to cash in on the "eurocrisis" loose their shirt.

  • Comment number 34.

    "The constraint is not how many bonds you can sell to the market at whatever interest rate because QE can circumvent both of these issues. The constraint is how much inflation can be absorbed by the resulting increase in money supply, and that becomes a political issue."

    Hurrah somebody gets it!

    In other words the UK is resource constrained not fiscally constrained.

  • Comment number 35.

    "At the moment we can borrow cheaply, but if that changes, even more cuts will have to be made "

    The UK doesn't borrow. It has its own currency, therefore it operates the other way around. The UK offers government saving accounts to those with spare Sterling they don't fancy sticking under the mattress.

  • Comment number 36.

    Well, Robert, UK Gov lent Republic of Ireland £millions this year. Now UK Gov are doing the same for Portugal.

    Both members of the Euro Zone. However, ROI " was a different case as a close trading partner" according to the Chancellor George at the time.

    Goal posts for the Chancellor to move to suit policies are tricky - now we are lending Portugal due to Alistair Darling's signature on a policy before he left office.

    So which is it - was ROI situation so different to Portugal right now? Both Euro currency countries who have been battered by Euro speculators that roam in packs?

    As long as international speculators continue to take the rise out of our so-called Government and Treasury and the Bank of England - ordinary working people, who keep Britain running and paying income tax, NI and VAT @ 20% - the lies and scams across the whole 'financial industry' continue with no redress?

  • Comment number 37.

    20. At 16:42pm on 24th Mar 2011, matt_us wrote:

    "Gee, writingsonthewall, you are a bit pessimistic, aren't you?"

    No - only about ponzi economics, I've been doing this for a while now...

    "Well, most governments pay off old borrowing with new borrowing, if the economy in the end grows by more - everything is honky-dory - no Ponzi scheme."

    Isn't that the floor in your plan? - that worked in the past when only half the world was in debt and the other half in surplus - now the majority are in debt - who's going to be doing the lending? Where does the growth come from - our exports? - I'm afraid an 'export led recovery' is what everyone is going for - we'll be a world of shopkeepers and not a single customer!

    "At the moment, the Greek economy grows by less than the new debt they took on. In fact it shrank by 4,5% last year. But that is only an adjustment, as the Greek economy restructures itself. In the end it will grow more than its debt will grow. That is the idea!"

    Not if it defaults first - or takes so long it bankrupts the Euro - remember Greece are not alone - which EU nation is going to buy the highly prices Greek goods? They cannot devalue - it's more expensive in Athens than in London!

    "What, there is about $80 billion betting on the default of Greece, (gross CDS contracts outstanding), and all these punters believe the bookies can't pay up, if their winnings come in - and Greece has to restructure? You better think again. These bookies will be AAA rated banks which are too big too fail - and will be rescued by the taxpayer. Otherwise nobody would have bought these CDS."

    Now you're second guessing what the Governments will do - not really an 'educated bet' is it? - more like 'pot luck' - and besides I'm talking about the COUNTERPARTIES - just like when all those AIG CDS's went unpaid (until the US Govt stepped in)
    I'm sure I heard new Governments talking of 'no more bailouts' - and do you think the people will stomach it?

    "What - you were you inside the Greek government offices where the IMF and EU economists hang out - and looked over the shoulders of their Greek colleagues? Or just on the beach?"
    No, I was trying to get around with all the transport stopping every other day (through strikes) and the continuous protests - I couldn't even get to see the Acropolis as all the staff went on strike!
    What the Government does is irrelevant - didn't you know the economy is the ACTIVITY of the NATION - not numbers in spreadsheets in central office! - in Greece the activity of the nation is very low at the moment.

    "Greece is making incredibly good progress - raising taxes - reining in expenditure. Could do more - maybe - but they are on the right path. Says the IMF and their latest March report from last week."

    never listen to IMF stormtroopers - of course they will be making good noises about restructuring - otherwise the Greek people will kick the IMF out for the frauds they are. They're hardly going to say "you followed our recommendations and they're not working" are they??
    Raising taxes is all well and good in Greece - but is anyone paying them? You need to get off your MSM feed and start reading some REAL news.

    "The Germans are not stupid - they first of all will campaign for banning CDS - so that nobody has an interest in countries going bust."

    ...and nobody can insure themselves against sovereign default - didn't really think about that did you? Do you think investors will still buy bonds if they cannot 'believe' they are covered in the event of default?
    Come on - don't join the sheepeeeple - use your brain.

    "Then they will make sure that a cheap long term financing facility is in place to help Greece. They will use the rescue fund to bring down yields and provide guarantees at very cheap cost - so that investors will buy Greek bonds."

    Really - what with? Aren't the Germans now providing cheap long term finance to Greece, Ireland and Portugal now? How long could you 'support' the unemployed in your street? - maybe one or two households - but when you're the only one left working....
    ..and if you read my other post - the Germans 'rescue' will cripple them with rampant inflation - or did you think continuously providing liquidity to nations came at no cost?

    "Than they will make sure that current account deficits are evened out. They only have to go on holiday to Greece, and the Greek economy would be booming. They only need about 15% more holidaymakers to get a boost to their GDP of 6% or more. That is easy."

    You're thinking of when Greece had the Drachma - now Greece is more expensive that Monaco - get real mate - nobody can afford to go on holiday to greece - The German people are in fact actively boycotting Greece as they are peeved about the bailout (that's something else I discovered when I was 'on the ground')

    "The choice for Germany and the other Eurocountries running current account surplusses is therefore surprisingly simple - go to Greece on holiday, if you want your money back. Win-win situation - really!"

    That is bufoonery of the highest magnitude - again you're thinking of the OLD way Greece was bailed out - didn't anyone tell you they joined the Euro?

    "I take it you support banning of CDS, though?"

    Don't care really - on the brightside the CDS holders will eventually be banned - issuers have issued in excess of what they could afford to pay out. They are reliant on the historic default rates - and unfortunately we're breaking historical records on a daily basis.

  • Comment number 38.

    24. At 16:55pm on 24th Mar 2011, matt_us wrote:

    "What are you talking about - GB had the IMF in and did not default - same will happen to Greece, Ireland, and Portugal."

    Matt_us - when that happened - how many OTHER nations were at risk of default at the time?

    This is unprecedented - you cannot rely on the history of Britain when it blew up in the 70's because the crisis wasn't as deep and more importantly - everyone else wasn't in the same boat! I mean we even had emerging markets back then - now they're all 'emerged' and not in a position to provide the world demand to help recovery.

  • Comment number 39.

    @Reticent Trader
    "But can the ECB print? - isn't there some EU law banning it?"

    Nope - no rules. I think there is something I read saying that the ECB can explicitly print rules and regulations to ban speculative products such as Credit Default Swaps - if it interferes with the sensible operation of capital markets within the eurozone area!

    It's about time the ECB uses that power.

  • Comment number 40.

    33. At 17:24pm on 24th Mar 2011, matt_us wrote:

    "I bet they understand and look forward to it - as hedgefunds and speculatos who are hoping to cash in on the "eurocrisis" loose their shirt."

    ...what like they lost their shirts in 2008? come on fella - you weren't born yesterday were you?

    All bets have been off for sometime now - this is corporate fascism - where the private sector wealthy take their profits but socialise their losses.

    Protecting the minority at the expense of the majority - that's fascism. Don't be confused with pictures of Hitler and Mussolini and be expecting goosestepping down whitehall.
    You will fell corporate fascism when you cannot pay your electricity bill and end up in prison as a result.

    ...or when a judge is arrested under THE LAW and the agents of the law refuse to act upon it.

    https://www.bbc.co.uk/news/uk-england-merseyside-12668444

  • Comment number 41.

    Matt, my previous post got referred for some reason but interesting theory on the CDS's being outlawed by EU legislation, but I just can't see this happening. Osbourne will be surely working hard to exempt the UK based hedge funds from any such directive. That is his raison d'etre.

  • Comment number 42.

    @writingsonthewall
    "never listen to IMF stormtroopers - of course they will be making good noises about restructuring - ....Raising taxes is all well and good in Greece - but is anyone paying them?"

    Well, have a look at the IMF report - its very detailed and it is the best what we have got - and its a hell of a lot better than before, when we did not know what was really going on in Greece. And the taxes are paid - yes - not all - but a lot more than before.

    @writingsonthewall
    "...and nobody can insure themselves against sovereign default - didn't really think about that did you?"

    Nobody could insure themselves against sovereign default before 1990 as CDS had not been invented. Bond markets operated for hundreds of years like that - no problem. Bonds can always be sold if too risky - that is the whole point of them.

    And besides the EFSF rescue fund could provide guarantees for really nervous investors.

    @writingsonthewall
    "What the Government does is irrelevant - didn't you know the economy is the ACTIVITY of the NATION -"

    The activity of the nation was not very much in the holiday place I stayed last summer on a Greek island. Receptionist came from France, bus driver and night porter from Bulgaria, garden crew and some cleaning staff from Poland, waitress from Estonia, electrician and handy man from UK. Whilst Greek youth unemployment 20%. There is obviously some slack in the system.

    @writingsonthewall
    "That is bufoonery of the highest magnitude - again you're thinking of the OLD way Greece was bailed out - didn't anyone tell you they joined the Euro?"


    I was not talking about you going on holiday, with a weak pound in your pocket. The current account surplus countries in Europe will have to go. VAT on hotel rooms is down in Greece this summer, so should be cheaper than last. Greece has the lowest capacity utilisation of their holiday places in Europe -everybody comes in summer, but not in spring or autumn. If capacity utilisation is bigger, prices can come down. So with a country which earns 20% of its GDP through tourism, that is the way out of its predicament - not buffoonery!


    Now, finally, CDS will need to be banned first - then nobody can make a profit on betting on defaults. They are just an instrument to make hedgefunds richer and all of us poorer - like most things hedgefunds deal with. That alone makes them worth banning. Whether we bail out banks who wrote CDS or not - we do not want to be in the position to even have to consider it.

    And we do not want hedgefunds positively brainwashing people, telling them that all these European countries are bust, when they clearly are not. Hedgefunds can and will bribe anybody they can get their hands on - and they will tell everyone that countries are bust when they are not. And if hedgefunds made money 3 years ago with CDS - even more reason to ban them - so that they now can pay us back.

    Ultimately only balance current accounts will help - and that is something to campaign for. Banning of CDS and balanced current accounts. Put these things on your campaign list!

  • Comment number 43.

    Matt_us

    It is a Ponzi scheme (as all the bank bailouts are) as liabilities in hedge funds and banks are translated to tax payers in EU nations.

    I hope that the EU let the Portugese Government default so that the hedge funds take the hit rather than tax payers.

  • Comment number 44.

    As I type this there are 41 posts and 11 are from WOTW. Now either it is a very slow day at the WOTW workplace or this is in danger of turning from the Robert Peston blog to the WOTW blog. I am sure the WOTW blog will make entertaining reading but it belongs on the Marxist Today website.

    I particularly enjoyed

    ""Greece WILL default, Ireland probably WILL default and Portugal MAY default because each country has pursued unsustainable state spending policies which are at odds with their tax base."

    ...nothing at all to do with their banking sectors needing bailing out coinciding with a massive credit squeeze which took them all into recession and destroyed tax receipts (the Governments income). That was just 'coincidental' - right?"

    Never let facts get in the way of a passionate post.

    Greece had nothing to do with the banks, they fiddled their books. Not surprisingly most lenders then decided they wanted nothing to do with them

    Ireland was definitely a combination of a banking sector out of control, a property boom out of control and govt spending out of control. We can argue endlessly as to which was the most important but all played a part.

    Spain is a property boom gone bad. Couple that with clear problems at regional level with certainty of law, an employment market where law positively discouraging businesses employing people, and a banking market where there are major problems at the small and regional levels but real strength at the national level and what you end up with is a situation which could go either way. I would not be as dogmatic as WOTW: Spain may need a bail out but at the moment the jury is out on that one. Next 6 months will be key

    Italy has nothing to do with the banking market. Everything to do with a completely dis-functional political system. Like Greece they have consistently over-spent for 30 years at eye watering rates

    Portugal is a strange one. I have no idea why the markets are so down on Portugal. It is nothing to do with their banking market, they have only a small one

  • Comment number 45.

    Reticent Trader at 26 (and anyone else)

    Couldnt Governments force de-leverage at the banks by raising contingent capital requirements much higher to neutralise the increased public sectro debt levels in Governments caused by bailing them out and the output gap from the recession 2008 onwards?

    I am looking at this "austerity" approach of the UK, Ireland, Greece, Portugal etc to getting rid of public sector debt and it just doesnt seem to work.

    It seems to lead to stagnation, unemployment, economic contraction, credit worthiness of your national debt sliding and untold misery for the population.

    Might not a better way for dealing with public sector debt be to maintain existing levels of Government spending as needed to support growth but to stop issuing bonds and to print the money directly (through QE or whatever)?

    To counteract inflation casued by the increase in money supply Governemnts would reduced leverage levels in the private banks.

    This way banks apy for the crisis they casued and taxpayes and the populations dont have to take all the pain.

  • Comment number 46.

    matt_us #29 wrote

    Ok - here is a question for these who consider Portugal (smaller deficit than UK in 2010) junk status:

    How big was the UK government debt in 1947 - compared to GDP. Just under 80%, as Germany. Just over 80% as Portugal. Just over 140% as Greece?

    None of the above. In 1947 the UK government debt was an astonishing 243% of GDP. All due to the loans the Americans gave Britain to fight the War, of course.

    Now - did anybody make a fuss then? Were people writing into Robert Peston then - saying the end is nigh? Or did they actually introduce the NHS, build loads of houses for returning troops, restructured the economy to make civilian rather than war goods, improved public education, improved the welfare state, etc, etc.

    So all these doom-mongerers are obviously wrong and have not got a clue what they are talking about. If Britain did all that - and paid back its loans to the US - it will be an absolute doddle to do that for Greece, Ireland and Portugal now. Everybody is richer now - these countries were the main beneficiaries of the EU and they will have to tax their people a bit more and bingo - that's it.

    It is very foolish to compare our position in 1947 with the position of Greece, Ireland and Portugal today.

    In 1947 exchange rates were fixed and currency movements were extremely closely controlled. We also had our own currency, as we do now, and in 1947 we devalued sterling quite sharply. That was absolutely necessary for our economic and financial survival. And even after devaluation in 1947, currency movements remained just as closely controlled.

    Portugal, Ireland and Greece today do not have their own currency. They cannot devalue and neither can they prevent capital leaving the country as we did in 1947. Now tell me how will those countries will be able to avoid default?

    Lending them money when they cannot afford to repay the interest, let alone the capital, which is what the ECB has been doing, is no solution to the sovereign debt crisis. All that does is to increase the size and impact of the inevitable default.

    It is also clear that there is a limit on the amount of austerity any Government can impose on their people. They will either fail to get the austerity measures through their Parliament, as in Portugal, or be virtually destroyed in the next General Election as in Ireland.

    The defeat of the budget in Portugal suggests that no future Government will seek to impose the sort of austerity package that will be demanded by the ECB for any bailout. What will happen then? If there is no bailout, there will be an inevitable default, and the shockwaves will not stop at Portugal’s borders.

  • Comment number 47.

    @21. At 16:42pm on 24th Mar 2011, Qasim wrote:
    "We need to remember one thing - there is no "God" given right for countries to be able to borrow money. If a country is so much in debt (like most countries are) that as a lender you have NO or very little chance of being repaid why would you lend the money??"

    Why would a country need a "god given right" or indeed any right at all to borrow money? Why can a democratically elected government not produce the money it needs, debt-free, to facilitate trade, or to use that debt-free monetary system to develop/improve the country's infrastructure? This could be either entirely fiat and based on trust or backed by a precious metal or perhaps a commodity.
    Issues: it would need to be very tightly controlled otherwise, for a totally fiat monetary system, inflation would take over and/or the good faith in the government to honour its financial commitments would be lost (see the Golgafrinchans using leaves as currency in the Hitchhiker's Guide to the Galaxy :-)
    For precious metal/commodity backed monetary systems the perceived worth/value of it would underpin the currency and this can clearly fluctuate rendering the currency perhaps not as "stable" as it perhaps ought to be. I guess gold is selected on the basis that its value changes relatively little compared to, say, silver, but of itself gold value depends on the fascination that humans have with a shiny bit of yellow metal - I don't think you can eat, drink or smoke it and it might not make an ideal building material for shelter. Either way, the currency value/worth (whatever terminology you want to use) is dependent on *people's* perception of that worth (not an individual's - unless he or she has cornered the market). This then eventually descends into the whole nature/nurture discussions which WOTW and that_Ian love to debate so much...

    All of this is, of course my perception and clearly I will need to be corrected on a few/several points.

  • Comment number 48.

    Loved the bit about "borrowing" from their banks by selling them bonds. Are the banks stupid or something? Don't they do credit checks anymore? Unless of course, there was an implicit understanding that these worthless bits of paper could be unloaded onto the ECB. May even be a little tickle in it for them in the form an arrangement fee. Surely not?

  • Comment number 49.

    A true Capitalist believes in the market and letting things fail...., they are not generally believers in interventionism and takeovers by the State.
    Capitalism would let Portugal fail if the market loses confidence.
    Interventionism by the State, especially the ownership of Banks & Key Industries is more of a Socialist type of action.

    We are more pragmatic I'd suggest.

  • Comment number 50.

    Matt-Us

    The UK repaid its debt to the US after WW2 without putting in place austerity programs.

    In fact the opposite - the Governemtns of the day increased public spending by introducing the NHS and welfare state. This triggered huge growth in GDP, increased tax revenues and full employment.

    The opposite tactics as tried by Portgual, Greece, Ireland the George Osborne result in deflation of the economy, inflation of prices, unempoyment, stagnating lving standards, reduced tax revenue, contraction of GDP and National failure.

    This is the lesson of the 1930s, UK after WW2, Chile and Argentina in the 1970s/80s, Japan in the 1990s, the Asian crisis of 2000's and finally the PIGs now.

    Osborne and the Treasury just are rather ignorant of economics.

  • Comment number 51.

    50. At 19:57pm on 24th Mar 2011, Payguy wrote:

    Matt-Us

    The UK repaid its debt to the US after WW2 without putting in place austerity programs.

    .....................

    The debt was only finally paid off in the last couple of years ... and Germany is still costing the UK taxpayer a few billion quid a year with British troops still stationed there ... so arguably the costs to the UK of WW2, are ... 'ongoing'

  • Comment number 52.

    nautonier

    Difficult to see how introducing the NHS and welfare state in the teeth of a massive public sector debt wasnt affordable in the 1950s. It was affordable and we did it.

    It gives the huge lie to the "there is no alternative rubbish the current government are trotting out

  • Comment number 53.

    At 44. At 19:09pm on 24th Mar 2011, Justin150 wrote:
    The issue with Greece fiddling the books has been over-reported by mainly German popular press but it is inaccurate and certainly not the main prob. To put it realistically, she fiddled the books more or less as everybody else. There has certainly been a problem with the statistics but mainly due to shear incompetence and disorganisation. They still do not know how much they spend on a number of departments. They are still in a mess and they try hard to sort out their organisation. However this is not the main prob. If this was the problem, Greece would have no prob now that her statistics and books in general are scrutinised by the troika. The markets have short memory and would have not cared less even if they had fiddled the books. The problem of Greece is a problem of having a party with over-borrowing while tax-evasion is a national sport. The debt has accumulated and under current global circumastances with overall recession which diminishes tourism and shipping revenue (Greece's main sources of income) is simply impossible to pay independently of cuts and austerity. Haircut is inevitable one way or the other and that's why the borrowing (spreads) is so high. Fiddling the books or not is irrelevant. If situation changed (tourism, shipping, Greeks inventing cold fusion or anything) and Greece returned to surplus (as used to have) then she could return to borrowing easily.
    Portugal's problem is similar or even worse (no source of income to create surplus and no obvious how the situation will change) and has been there for some time. However, her overall debt is smaller and could be easier to resolve if they find their ways (will take years of course).
    I agree with you on Ireland but the fiddling of the books issue is a prob for her as they have not and do not say the truth regarding their banks it is still unkown how much their failed banks will cost. They might be in even worse case than all.

  • Comment number 54.

    Well this was no suprise. What I'm really interested in is how the election will go. Ireland supposedly had a paper 'revolution' but I'm not convinced, more a case of the other lot having a go, just differing over how quickly to impose the cuts, and the level of interest rate. Will the Portugal population put in power a government that will give the finger to the bond holders, or will they chicken out like the Irish. Time will tell. If 'revolution' is going to happen in europe next, I'm curious to see if it happens through the ballot box, or Egypt/Tunisia style, because the difference is they have a democracy. Hitler in Mein Kampf said that democracy inevitably leads to marxism. We all know he was crazy, but he was also very intelligent. We shall see.

  • Comment number 55.

    47. At 19:29pm on 24th Mar 2011, Stuart Wilson wrote:
    @21. At 16:42pm on 24th Mar 2011, Qasim wrote:
    "We need to remember one thing - there is no "God" given right for countries to be able to borrow money. If a country is so much in debt (like most countries are) that as a lender you have NO or very little chance of being repaid why would you lend the money??"

    Why would a country need a "god given right" or indeed any right at all to borrow money? Why can a democratically elected government not produce the money it needs, debt-free, to facilitate trade, or to use that debt-free monetary system to develop/improve the country's infrastructure?
    ......
    Of course the UK had a debt free money supply for 700 years, they were called tally sticks and were pieces of wood. It worked well and the UK was debt free until a small group of rich folk set up the Bank of England and retired the tally sticks in preference to gold, which they then controlled the supply off. So much time has passed and yet so little has been learnt.

  • Comment number 56.

    @ Reticent Trader
    "Osbourne will be surely working hard to exempt the UK based hedge funds from any such directive. That is his raison d'etre."

    Well, if a few thousand pounds donations by individual hedge fund managers (8 of the biggest 10 donations to Tories came from hedge fund managers) are enough for the Government ot sell out its country and rather issue huge bail-outs to countries which are in difficulties due to hedge funds speculating with CDS - then it is certainly time for a new government. But I do not thing that is the case. No amount of donations will allow Osbourne to stop any directive banning the selling of naked CDS.

    @Payguy
    "It is a Ponzi scheme (as all the bank bailouts are) as liabilities in hedge funds and banks are translated to tax payers in EU nations."

    Don't confuse the issue, please. Hedge funds can fail and should fail - when CDS are abolished. That is generally to be applauded. Banks would only fail if the CDS they issued need to paid out. That is bad news, as banking crisis can follow. (Reminder: Queues at Northern Rock!). That can be avoided by abolishing CDS.

    @busby2
    "It is very foolish to compare our position in 1947 with the position of Greece, Ireland and Portugal today. - In 1947 exchange rates were fixed and currency movements were extremely closely controlled. We also had our own currency, as we do now, and in 1947 we devalued sterling quite sharply."

    Foolish? Well, the devaluation of the pound could not have helped with paying back the dollar denominated loans to the US - to the contrary. More sterling was needed to pay back the loans in time.

    @busby2
    "Now tell me how will those countries will be able to avoid default? "

    The periphery countries will have to devalue internally by adjusting wages downwards. Has happened in the Baltic states already, in Ireland and Greece it is happening at the moment. That is the only way. And wages will have to be raised quicker in Germany, Holland, Austria, and other countries running current account surplusses. Wages grew 70% more in Greece than in Germany over the last 12 years. So, there is room to adjust them downwards. In the longer term only relatively balanced current accounts will help.

    @busby2
    "The defeat of the budget in Portugal suggests that no future Government will seek to impose the sort of austerity package that will be demanded by the ECB for any bailout. What will happen then? If there is no bailout, there will be an inevitable default, and the shockwaves will not stop at Portugal’s borders."

    In Portugal we will have to see whether the new government will do. However - default is bad for the individual countries and all the governments know that. Otherwise we would have seen defaults already. Clearly, the EU has monies available through its structural funds, which perhaps should be used to help countries in difficulties. That would generate growth in those countries.

    @Jesoal_Kotarohe
    "Capitalism would let Portugal fail if the market loses confidence.
    Interventionism by the State, especially the ownership of Banks & Key Industries is more of a Socialist type of action."

    I guess we would not have had GM/Vauxhall/Opel anymore, and the now again profitable businesses and hundreds of thousands of people they employed (directly or indirectly) if the US government had not intervened. Sometimes it is good to proceed with "socialist type of actions". And, as we also like to keep Portugal, it is right to help them when manipulated capital markets fail, and help them out of a spot of bother. Their finances are not much worse than the UKs.

    @Payguy
    "Osborne and the Treasury just are rather ignorant of economics."

    Well, we knew that before the elections - now it is a bit too late.

    @vassilis
    "The problem of Greece is a problem of having a party with over-borrowing while tax-evasion is a national sport. The debt has accumulated and under current global circumastances with overall recession which diminishes tourism and shipping revenue (Greece's main sources of income) is simply impossible to pay independently of cuts and austerity."

    It was a national sport in the 70s in Britain to give unions too much power, pay for loss making state industries and be regarded in Europe as an economic basket case. That changed quite quickly. It's certainly hard, but not impossible to change it.

    However, tax evasion is difficult for VAT, property taxes, wealth taxes, excise duties - every country has a wealthy 10% which will own about 50% of the wealth. Governments can take a charge over a property, if there is allegedly no cash to pay for taxes. The wealthy have to be taxed and/or forced into buying government bonds. That will be popular in any country - especially in Greece. And making tourism cheaper will bring tourists back to the country. That has to be the main priority, I would think.

  • Comment number 57.

    54. At 21:54pm on 24th Mar 2011, Averagejoe wrote:
    ..... Will the Portugal population put in power a government that will give the finger to the bond holders, or will they chicken out like the Irish...'

    --------------------------------------------------------------------------
    Well if the unassuming, placid Portugeuese take to the streets violently then there really will be an issue.

    As for the Irish, and I speak with 2nd hand experience, they haven't woken up to what the next set of austerity measures will mean.

    Wait until the Spanish get wind of what will happen to them. All the half built property complexes across the whole country - not only are they worth less, they are worth nothing and the taxpayer will have to pay people to take the bricks and cement away


  • Comment number 58.

    @geofffromleeds
    "Loved the bit about "borrowing" from their banks by selling them bonds. Are the banks stupid or something? Don't they do credit checks anymore? Unless of course, there was an implicit understanding that these worthless bits of paper could be unloaded onto the ECB. May even be a little tickle in it for them in the form an arrangement fee. Surely not?"

    I think there is possibly collusion between bond holders and CDS investors. The way big chunks of Portuguese debt have recently been sold off seems to have only one purpose. Panic the market and drive up CDS prices. To me there is no reason for it. No big chunks of British debt were sold off - and Britain is not much worse than Portugal.

    That also happened with Greece last spring. The idea was then, to let Greece default and cash in on CDS. That plan did not work, as a massive bail-out fund was put together as the ECB stepped in to buy bonds. I think the hedgefunds thought it was slighly easier to bring about a default. They have enough American economists pressing that point in the European press. (Some guy even has a view, even though he teaches finance at Peking University! Teh closest link he probably has to Europe is probably his CDS betting on a Greek default.) There is econmic think tanks which seem to have just been set up to make the case for default - never mentioning the massive profits which can be made for CDS holders from tha action. And the film "Inside Job" has shown how easy it is to get economists to say anything, as long as the fee is right!

    So your suspicion about an arrangement fee is probably right - just not where you thought it might be.

  • Comment number 59.

    @55. At 22:00pm on 24th Mar 2011, Averagejoe wrote:
    "Of course the UK had a debt free money supply for 700 years, they were called tally sticks and were pieces of wood. It worked well and the UK was debt free until a small group of rich folk set up the Bank of England and retired the tally sticks in preference to gold, which they then controlled the supply off. So much time has passed and yet so little has been learnt."

    1) tally sticks were used to purchase the initial shares for the Bank of England*,
    2) the government of the time never received the full proper payment for the shares for the BoE - they received a small proportion initially, the rest of the payment for shares the BoE created via fractional reserve banking*

    This would be funny if it wasn't so tragic.


    *source: "The Money Masters" - Bill Still.

  • Comment number 60.

    WOTW: I often read the comments attached to RP's blog and usually stop at your's. Whilst you clearly have the right to your (leftist) opinion, and are well informed about many of these matters, for the sake of others it is necessary to correct some of your remarks.
    Firstly, the ECB purchasing second-hand Portugese bonds is not a Ponzi scheme. It is an artificial market for sure, but a Ponzi scheme is a form of theft where there are no underlying assets (i.e. Madoff). With the Portguese bonds, there is an underlying asset (the debt repayments that the Portugese government will make to you) but the ECB's actions are preventing the risk from being properly priced. The ECB is almost certainly paying too much for this.
    Secondly, and you have repeatedly tried to mislead people about this (as have union leaders arguing about "bankers' pay"), only a small part of the debt that sits on the P/L account of UK Plc is related to the banks' bailout. And in return the government owns large chunks of the banks and should, if they are smart, make a tidy profit. The MAJORITY of UK debt is down to government overspending. In very rough figures, the national debt when Labour came to power in 1997 was £420bn. When they left, it was £900+ bn. Of that £900bn about £120bn relates to bank bailout funds and should be recouped. I will allow RP to correct me if I am wrong.
    So the public should not be constantly fed a line of "the bankers caused this debt" - they didn't. Government did in order to build roads, schools, hospitals etc that we can't afford, and to pay for wars we shouldn't be involved in, and to fund unnecessary election bribes like free TV licenses for the grey vote, giveaways to parents of new born babies etc. THAT IS WHAT HAS CAUSED MOST OF OUR DEBT.

  • Comment number 61.

    Got to agree with Simon above. Most of the money made by bankers seems to be generated by Socialist governments getting themselves into a hole by spending too much. And then getting back out of the hole by spending the savings of the thrifty.

  • Comment number 62.

    This whole sad affair is the inevitable result of the naive creation of this stupid currency in the first place. People are just in denial about it. When will they accept 'the blindingly obvious'? The Euro needs to be ditched before it causes even more damage to European economies and allow each country to sort out its own problems by devaluation and setting its own interest rates. Then no bailouts would be needed.

  • Comment number 63.


    @Simon Bailey
    "Of that £900bn about £120bn relates to bank bailout funds and should be recouped. I will allow RP to correct me if I am wrong.
    So the public should not be constantly fed a line of "the bankers caused this debt" - they didn't. Government did in order to build roads, schools, hospitals etc that we can't afford,..."

    Your argument is only partially right. You forget, that it came to a collapse of the economy through the banking crisis. So all the lost output through that would have allowed the UK to continue on a growth path. Unemployment would have been lower, that would have allowed the UK to grow in other areas.

    So not only is the debt due to bailing out banks, but also due to bailing out other induststries which collapsed, like the car industry, for example. And if you don't think we need new hospitals, schools, roads, etc - you can continue to vote for the Tories and live, in the end, a third world country. Because that was the path the Conservatives led us to last time, and that is the path they are on now!

  • Comment number 64.

    60. At 08:17am on 25th Mar 2011, Simon Bailey wrote:
    So the public should not be constantly fed a line of "the bankers caused this debt" - they didn't. Government did in order to build roads, schools, hospitals etc that we can't afford, and to pay for wars we shouldn't be involved in, and to fund unnecessary election bribes like free TV licenses for the grey vote, giveaways to parents of new born babies etc. THAT IS WHAT HAS CAUSED MOST OF OUR DEBT.
    ..................
    All Governments since the war have been in debt, except for a few years when we privatised some public services under Thatcher. The Governments spending pre credit crunch was better in terms of % to GDP than Germany and France I understand. After the credit crunch and the recession started tax receipts fell off a cliff and the ratio became much worse. So its the recession, caused by the banking disaster that is the real cause of the problem. If you dont believe me go and check how much tax receipts dropped for your self.

  • Comment number 65.

    57. At 22:39pm on 24th Mar 2011, M_T_Wallet wrote:
    54. At 21:54pm on 24th Mar 2011, Averagejoe wrote:
    ..... Will the Portugal population put in power a government that will give the finger to the bond holders, or will they chicken out like the Irish...'

    --------------------------------------------------------------------------
    Well if the unassuming, placid Portugeuese take to the streets violently then there really will be an issue.

    As for the Irish, and I speak with 2nd hand experience, they haven't woken up to what the next set of austerity measures will mean.

    Wait until the Spanish get wind of what will happen to them. All the half built property complexes across the whole country - not only are they worth less, they are worth nothing and the taxpayer will have to pay people to take the bricks and cement away

    ....
    My understanding is that to bail out Spain will cost more than Greece, Ireland and Portugal together. That probably will be the final straw.

  • Comment number 66.

    Matt_us:
    You're right to say the situation is far more complex that anyone can describe in a blog (though people try!). Yes, other industries are interwoven with the bank bailout and there has been lost growth/unemployment as a result of the induced recession. But you can argue that a recession had to be coming after so many years of "growth". Sub-prime mortgages in the US turned out to the recession trigger, but it could have been the popping of any number of other bubbles that caused the worldwide crash (e.g. inflated property markets in numerous countries - US, UK, Spain, Ireland, Japan, Hong Kong, Australia......, or currency imbalances, or an oil spike......)
    The point I was trying to make was to correct WOTW (and others) that our national debt is all down to the banks. It is not, it is down to governments of all colour (but particulalry the last labour government) spending money that it does not have. Anyone remember Flash Gordon's claim that his pruduence would balance out over the course of the economic cycle? That allowed him to spend too much because it would "balance" out later (presumably by higher tax receipts from corporations, personal tax, fuel duty, stamp duty etc). He was totally and utterly wrong.
    As for comments about voting, I didn't vote Tory at all. But I do appreciate that they have been thrown the rugby equivalent of a "hospital pass" by inheriting such a shocking mess from Labour that they are doing what they believe to be the right thing to sort it out. You can debate whether you agree with their choices for days, but everyone should acknowledge that they inherited an absolutely shocking mess from Labour who proved to be economically incompetent.

  • Comment number 67.

    @Simon Bailey
    "...but everyone should acknowledge that they inherited an absolutely shocking mess from Labour who proved to be economically incompetent. "

    You can argue that they spent too much money on the public sector. To say they are economically incompetent I think would take it too far. That is the view presented by 80% of the British press. Nobody would have argued that in the beginning of the Labour government, when they repaid government debt.

    The biggest economic crisis since the 1930s raised borrowing in all countries. Conservative or Socialist. None were economically completetly incompetent. Gordon Brown least of all. Britain was hardest hit, given the economic importance of the banking sector.

    Government borrowing in Germany, for example went up by twice as much as in Britain in 2010, still a fall-out from the banking crisis in 2008. (And the Tories were sticking to the Labour Spending plans, mainly, in 2010) Did you know that?

    In fact German government borrowing by person in 2010 was about 50% higher than in Greece - an interesting bit of information - for all these Euro periphery disaster merchants.


  • Comment number 68.

    @Simon Bailey....
    Interesting comment....
    "Firstly, the ECB purchasing second-hand Portugese bonds is not a Ponzi scheme. It is an artificial market for sure, but a Ponzi scheme is a form of theft where there are no underlying assets (i.e. Madoff). With the Portguese bonds, there is an underlying asset (the debt repayments that the Portugese government will make to you) but the ECB's actions are preventing the risk from being properly priced. The ECB is almost certainly paying too much for this. "

    So are you saying the difference between this and a Ponzi scheme is that the ECB has a licence to print money?

  • Comment number 69.

    52. At 20:33pm on 24th Mar 2011, Payguy wrote:

    nautonier

    Difficult to see how introducing the NHS and welfare state in the teeth of a massive public sector debt wasnt affordable in the 1950s. It was affordable and we did it.

    It gives the huge lie to the "there is no alternative rubbish the current government are trotting out

    ......................

    Yes Atlee succeeded in intruducing the NHS ... but under the fiscal umbrella of stringent austerity measures with rationing until 1953 ... with substantial increases in UK living standards having occurred since then and a strong something for nothing culture for many (and that is not entirely there own fault) ... it would be very difficult for any UK govt to introduce Atlee style govt finances today with capital and credit controls also ... and restrictions on UK imports.

    We must remember that after all of the the UK 'cuts', UK govt spending will be back to 2008 spending levels, more or less in real terms ... nothing like the fiscal environment when Atlee made his reforms. Atlee was only able to make those reforms because Churchill got the USA agree to a long pay back period for the UK so that the WW2 debt was affordable for the British economy.

    We need to be realistic here about how much a competent UK govt can achieve in the short, medium and long term when our UK economy has been and is stalled with high taxation/public spending, debt, deficit and liabilties.

    Helping the business community take the reins again is a priority ... but there are still other priorities ... one of which is clawing our way out of the EU VAT trap ... The apple cart needs to go over on that one!

  • Comment number 70.

    All this user's posts have been removed.Why?

  • Comment number 71.

    "NotLordMandy: So are you saying the difference between this and a Ponzi scheme is that the ECB has a licence to print money?"

    Actually, it is De La Rue that has license to print money! QE by the BoE is a way in which the BoE can increase the amount of money theoretically in the system (thus actually reducing the value of each £ as there are £200bn more pounds chasing or owning the same assets).
    My point about the ECB's actions is that to call it a Ponzi scheme is incorrect. A Ponzi scheme is theft because an assets is sold that does not have any worth. Portugese debt has some value - just not as much as the ECB is paying for it. The price is being artificially kept high to prevent their bonds collapsing and creating another run on the debt (a la Greek debt some months ago).

  • Comment number 72.

    #29. matt_us wrote....How big was the UK government debt in 1947 - compared to GDP. Just under 80%, as Germany. Just over 80% as Portugal. Just over 140% as Greece?

    None of the above. In 1947 the UK government debt was an astonishing 243% of GDP. All due to the loans the Americans gave Britain to fight the War, of course.


    Are you Ed Balls? He was using this pathetic example on Jeff Randall last night.

    You need to compare like with like. In 1945, how long did people spend being retired, receiving a state pension? It was on average a couple of years. And now? Well over 20. If you are a teacher you will have 29-30 years of pension on average.

    These pension liabilities are not included in the debt-to-GDP figures. And there are plenty of other liabilities not included in the figures as well. Just consider what old retired people now rely on in NHS treatment alone, compared to back in 1945.

    So you will find estimates that it adds up to between 250% and 450% of GDP depending on how you estimate the liabilities. One thing is for sure, that comparing the figures with 1945 to make a case for not being concerned about the level of current borrowing is stupidity.

  • Comment number 73.

    @burnallmoney
    "Apocalyptic piece by Oborne in todays Telegraph: Some European countries are in the habit of going bankrupt"

    To be followed, probably by tomorrows article: "Germans are in the habit of starting World Wars!"

    What do you expect from the Telegraph - other than anti-European doom-mongering?

    No country has gone belly-up in Western Europe since 1945 - and it will stay that way to ensure our continued prosperity and peace!

  • Comment number 74.

    I'm still waiting for someone to explain to me how you run a single currency via 15 finance ministries, and this 'dog's breakfast' confirms the problem

  • Comment number 75.

    30. At 17:20pm on 24th Mar 2011, writingsonthewall wrote:Still, apparently this is 'just a bailout' - it doesn't mean anything, just like this was 'just a recession' and the banks failing was 'just a run on a bank' - if you're outlook is based on playing down everything then the Japanese Tsumani was 'just a wave' and Chernobyl was 'just a reactor shutting down'.

    Reminded my of a charity "have a go night" I took part in - after my stage performance the general consensus was that it had been my farewell concert. Bitter pill to swallow!

  • Comment number 76.

    66. At 09:23am on 25th Mar 2011, Simon Bailey wrote:
    Simon, honestly I think you give labour too much credit. Yes they had their hand on the wheel of the car, but the car was one of those rides you get for children at a fair. You can turn the wheel but its not connected to the wheels. Boom and bust are caused by the banks, and the fact that we have a debt based monetary system. In the boom they lend too much and assets such as house prices become inflated. Then you get the bust, where prices begin to fall, you get bad debt due to defaults, and banks get into trouble, so the lending is scaled back, and the money supply strinks resulting in a recession. If the Tories had been in power it would still have happened, because they support the principle of deregulation and free market capitalism (not much different to 'new' Labour). Labour may have spent more, but until the bust it was still a reasonable proportion of GDP. The mistake Labour made was believing it was in control, and Gordon Browns daft claim to have brought the end to boom and bust.

  • Comment number 77.

    All countries should retain, or return to their own sovereign currency that suits their strengths and weakness with what that country has to offer as a nation?

    The 'one size fits all' madness of the Euro has obviously failed to meet turbulent financial times. Most especially for 'ordinary' working people, whose governments joining the European Union, have chosen, or forced to adopt as a voluntary or legal requirement for Membership.

    The true inception of the European Union is about trade; integration through trade and integration to avoid another World War.

    Not very member of the European Union gave up it's sovereign currency. Who decided on the Euro - governments of France and Germany? How do their populations feel now about the enforced Euro as a common currency?

  • Comment number 78.

    @jonearle
    "Are you Ed Balls? He was using this pathetic example on Jeff Randall last night?"

    No I was quoting that from memory and found the figures on ukpublicspending.co.uk.
    I just looked it up again, the proper figure was 238% UK Gov Debt in 1947 - but it still holds true. That Ed Balls is quoting these numbers is just to put Jeff Randall and his right wing propaganda nonsense in his place. We are being told everything is unaffordable - and everybody believes it.

    We are told that Euro countries cannot pay their debt and have to default. Yet - when the money was owed to the US after the war, the American economists who now ask for rescheduling of Euro-debt (to cash in on their CDS - my suspicion) did not argue like that when the money was owed to the US.

    To take pension commitments into that figure is wrong. You could eqully start adding up all the future school commitments for all 0-4 year olds, they are also not included. These things are paid as they fall due - and all kinds of things can happen to prevent them from being paid. The most likely scenario, of course, that pension ages go up, even further than now.

  • Comment number 79.

    @TomMacFarlane
    "I'm still waiting for someone to explain to me how you run a single currency via 15 finance ministries, and this 'dog's breakfast' confirms the problem"

    Easy:

    (1) keep to the stability and growth pact (3% deficit, 60% gov debt limits)
    (2) make sure that credit account balances are even throughout the eurozone
    (3) prevent property bubbles

    These three measures, if kept to them, would have prevented the Euro crisis.

    They only had (1) and did not even keep to it - so no wonder the eurozone is in a spot of bother. But, we only know that now - so it's a bit of trial and error with one currency in 17 countries.

  • Comment number 80.

    72. At 11:17am on 25th Mar 2011, jonearle wrote:
    #29. matt_us wrote....How big was the UK government debt in 1947 - compared to GDP. Just under 80%, as Germany. Just over 80% as Portugal. Just over 140% as Greece?

    None of the above. In 1947 the UK government debt was an astonishing 243% of GDP. All due to the loans the Americans gave Britain to fight the War, of course.

    Are you Ed Balls? He was using this pathetic example on Jeff Randall last night.

    You need to compare like with like. In 1945, how long did people spend being retired, receiving a state pension? It was on average a couple of years. And now? Well over 20. If you are a teacher you will have 29-30 years of pension on average.

    These pension liabilities are not included in the debt-to-GDP figures. And there are plenty of other liabilities not included in the figures as well. Just consider what old retired people now rely on in NHS treatment alone, compared to back in 1945.

    So you will find estimates that it adds up to between 250% and 450% of GDP depending on how you estimate the liabilities. One thing is for sure, that comparing the figures with 1945 to make a case for not being concerned about the level of current borrowing is stupidity.
    ............
    And whats the USAs debt to GDP ratio these days? 93%https://www.usgovernmentspending.com/federal_debt_chart.html
    I think you are being very harsh just to justify ignoring the past. You mention pensions. What were CEO pensions back in the 1940s? Bet they were a lot lower. The truth is we are once again experiencing a periodic crisis of capitalism (approximately every 40 years), due to over accumulation of wealth, and the resulting drop in demand that results. Add in massive debt occured over the last 20 years, currency debasement and the resulting inflation, and debate over the spending deficit becomes small potatoes. Cutbacks wont fix the underlying problems, they will simply reduce demand further, and economic growth wont return any time soon, and neither will the associated tax receipts.

  • Comment number 81.

  • Comment number 82.

    When is someone going to wake up to the great German rip-off - all those nasty countries with too much borrowing are keeping the Euro down so that the Germans can sell their BMW's, Mercedes, Audi's ridiculously cheaply.

    Give them their DM back, and the price of the cars for the rest of us would be up 40% or more. A good old terms of trade rip off that Merkel etc are very happy to hide blaming the over geared periphery of Euroland.

    Thank goodness for our own currency outside the madness - without it we'd be out on the streets as we headed for a depression that Greece, Ireland are already facing, and others soon will.

  • Comment number 83.

    WOTW, I think you will find the all time high of Silver was $49.45 /toz reached in 1980. Today it is trading at a high of 37.80, which to me is not an all time high. Gold did reach an all time high this week though, although when inflation adjusted, still someway off of the prices in the late 1970s, early 1980s.

    Would of thought you wouldn't have made that error!

    More amusing on silver is how JPM were rumoured to hold 43% of the short contracts last year, bet that was painful... Unsurprisingly that prop desk got closed!

    Everyone knows the Portuguese are in the mire, next it will be Spain, unless they somehow manage to create jobs for the 20% of the population without them.... Whilst cutting spending, interesting.....That's just from the 'official' stats, it is probably far, far worse.



  • Comment number 84.

    Here comes a really naive comment - bear with me..

    If Spain, Italy, Ireland, Portugal, Italy, UK, Germany, USA (basically every country in the world) owe money, as do the banks, central banks etc etc who is it owed to?

    Someone must be loaded, because our soon-to-be £1.2tn debt must be owed to someone - and we pay interest on this figure, as does every country in the world.

    And if it isn't owed to anyone, can't we all simply agree that every country defaults, nobody pays it back and we all go back to scratch?

    I can't understand because if I owe £1.2tn then I must owe it to someone. Who? If you consider that this figure pales compared to the US debt, who do they owe that money to?

    I presume if you add up every debt in the world, then there must be that exact same figure of surplus somewhere else. We know where the debt is and where we are spending money, but where can the surplus or income be seen of the equivalent value.

  • Comment number 85.

    71 Simon Bailey....
    " QE by the BoE is a way in which the BoE can increase the amount of money theoretically in the system (thus actually reducing the value of each £ as there are £200bn more pounds chasing or owning the same assets). "

    Followed by:
    "My point about the ECB's actions is that to call it a Ponzi scheme is incorrect. A Ponzi scheme is theft because an assets is sold that does not have any worth."

    So, if by printing more money, they are devaluing existing money, effectively reducing the value of any savings held.....
    And this differs from theft how?

  • Comment number 86.

    Going back to De La Rue..... Sounds like a monopoly to me.... LOL

  • Comment number 87.

    @busby2 wrote
    "It is very foolish to compare our position in 1947 with the position of Greece, Ireland and Portugal today. - In 1947 exchange rates were fixed and currency movements were extremely closely controlled. We also had our own currency, as we do now, and in 1947 we devalued sterling quite sharply."

    matt_us replied
    Foolish? Well, the devaluation of the pound could not have helped with paying back the dollar denominated loans to the US - to the contrary. More sterling was needed to pay back the loans in time.

    As others have pointed out the US loans were very long term and devaluation was needed to meet the immediate needs of the British economy at the time. I don’t think you have any real idea just how bad the austerity measures were in the late 1940s and that rationing was just as bad, if not worse, than in the war years. They were very difficult times for the economy and times of great shortages but the people were generally prepared to put up with them because they knew the reason for austerity was the sacrifices made to win the war.

    “busby2 asked
    "Now tell me how will those countries will be able to avoid default? "

    matt_us replied

    The periphery countries will have to devalue internally by adjusting wages downwards. Has happened in the Baltic states already, in Ireland and Greece it is happening at the moment. That is the only way. And wages will have to be raised quicker in Germany, Holland, Austria, and other countries running current account surpluses. Wages grew 70% more in Greece than in Germany over the last 12 years. So, there is room to adjust them downwards. In the longer term only relatively balanced current accounts will help.

    Are you serious? All these countries have been trying to devalue internally by adjusting wages and they are hitting brick walls of public discontent. Those policies are electoral suicide!

    If you google “cost of living comparison Germany Greece”, the first site I came across said that consumer prices were 5.6% LOWER in Germany and that local purchasing power in Germany was 151% HIGHER in Germany than in Greece. Greeks are not living the high life as a result of your claim that wages have risen far faster in Greece than in Germany. Membership of the Euro is crippling the Greek economy and cutting wages further will send the economy into a far deeper recession and pauperise vast numbers of the population.

    Busby2 wrote

    “The defeat of the budget in Portugal suggests that no future Government will seek to impose the sort of austerity package that will be demanded by the ECB for any bailout. What will happen then? If there is no bailout, there will be an inevitable default, and the shockwaves will not stop at Portugal’s borders."

    matt_us replied
    In Portugal we will have to see whether the new government will do. However - default is bad for the individual countries and all the governments know that. Otherwise we would have seen defaults already. Clearly, the EU has monies available through its structural funds, which perhaps should be used to help countries in difficulties. That would generate growth in those countries.

    Default is not an easy option but it is looking far better than the unworkable alternative of giving these countries a bailout that is no more than a temporary fix and simply adds to the total debt that can never be repaid!

    The fundamental problem they face is membership of the single currency which means they do not have the means to devalue their currency which is the practical way of ensuring they can compete with the likes of Germany. Driving down Greek wage levels simply won’t work it and it will bring huge social unrest that will bring down any Government that seeks to impose massive wage cuts. Do you want to bring back the Generals?

  • Comment number 88.

    #79. At 11:59am on 25th Mar 2011, matt_us wrote:
    @TomMacFarlane
    "I'm still waiting for someone to explain to me how you run a single currency via 15 finance ministries, and this 'dog's breakfast' confirms the problem"

    Easy:

    (1) keep to the stability and growth pact (3% deficit, 60% gov debt limits)
    (2) make sure that credit account balances are even throughout the eurozone
    (3) prevent property bubbles

    These three measures, if kept to them, would have prevented the Euro crisis.

    They only had (1) and did not even keep to it - so no wonder the eurozone is in a spot of bother. But, we only know that now - so it's a bit of trial and error with one currency in 17 countries.

    And all totally impractical and unworkable! The ECB couldn’t even enforce (1) so there is no prospect of them taking on and enforcing any other measures!
    Your comment that the Euro was all a bit of a trail and effort with one currency and 17 countries would be amusing if it wasn’t for the misery this has brought many countries unfortunate enough to be members of the Euro Zone.

    The fact is that the Euro Zone was first and foremost a political project and little or no thought was given to the economic realities of running one currency across 17 countries.

    In fact anyone with any knowledge of economics would have known that it was a risk too far to impose a single currency with “a one size fits all interest rate” across such a wide range of countries with vastly different economies. They are now ALL paying the price of this gross act of folly carried out by those in favour “of ever closer union”.

    The huge irony is that this continuing and ever deepening crisis is going to sweep away any prospect of achieving their vision of an “ever closer union”.

  • Comment number 89.

    Perhaps it is not a bad idea if the ECB supplies the euros which Greece, Ireland and Portugal need to repay their sovereign debts, instead of relying on Germany to lend the money at exorbitant rates. The alternative is deeper and deeper cuts in these countries, causing more unemployment and misery, and even the likes of Germany and the UK would suffer because of the loss of markets.

    A bonus would be that the ECB would create new money which would not go amiss at the moment, and the speculators, who have bet on defaults, would burn their fingers and perhaps be taught a useful lesson. The "humiliation" of the ECB is a small price to pay. It would face the much bigger price of extinction, if the euro were to be abandoned.

    Financial systems should be designed to serve the needs of the people, not to oppress them. It would be better in the long run, for all concerned apart from the speculators, if the new Portuguese government were to heed the resounding no to cuts, which the voters in the forthcoming election are likely to deliver, just as Irish voters did. This would force a reform of the euro system, in particular the development of an alternative to the present market based method for controlling the issuing of bonds by member states. Germany would be left with the choice to either to accept changes or leave the Eurozone and lose its advantages.

  • Comment number 90.

    So, sorry for a question that betrays a great lack of understanding, but with all the problems in so many of the core Euro countries, why is the Euro still so expensive?

    I keep thinking problems in Europe should finally enable me to afford that apartment in sunny Spain, but the more I read about unsold properties there the more out of reach they seem to become.

  • Comment number 91.

    Come on Mr Peston - be more cheeky on the Euro as a 'currency'?

    Perhaps put forth the idea that the Euro is, perhaps, failing most nations?

    The Euro was designed to be the 'dollar' of the United States of Europe? What an oxymoron?

    Is there a remote possibility that Nations who retained their sovereign currencies do better? The Euro has failed to meet the international financial crisis?

    Every nation member of the EU has much to offer. All of these nations have their strengths and weakness too. What's wrong with that? Their sovereign currency reflected and adapted to the highs and lows and still prospered.

    What we have with the pointless Euro is a constant financial nightmare never seen before in any financial history in modern or ancient times?

    The Euro experiment is a complete failure - accept it and get back to all nations deciding on keeping and taking back their own original sovereign currency in their own way.

    So who will be annoyed by my comments which will benefit 'ordinary' working people?

    Go figure - retorts will be full of: distraction and off topic or constipating threads?

    My comments may be too simplistic. But I doubt it - nor do I care - the Euro as a currency is failing all people and trade. Let it go. Admit it is a failed experiment? An intelligent EU would consider they are not perfect. Only fascism or other extremists consider themselves UNABLE to admit mistakes are being made?

  • Comment number 92.

    84. At 13:25pm on 25th Mar 2011, RHINO44 wrote:
    Someone must be loaded, because our soon-to-be £1.2tn debt must be owed to someone - and we pay interest on this figure, as does every country in the world.

    And if it isn't owed to anyone, can't we all simply agree that every country defaults, nobody pays it back and we all go back to scratch?
    =============================

    Your questions aren't naive but get to the crux of the matter.

    Essentially bad debts have been spun off from the banks onto the sovereign balance sheets and from there onto the central banks' where money can be printed to "quantitatively ease" the debt burden when the inevitable partial debt default occurs (haircut). However the price we pay poor will be in the form of inflation. The losses from reckless property speculation and lending will be then socialised.

  • Comment number 93.

    "NotLordMandy wrote:
    So, if by printing more money, they are devaluing existing money, effectively reducing the value of any savings held.....
    And this differs from theft how?"

    Because a Quantitative Easist would (try) and argue that the £200bn that was artificially created should filter down through society, companies and government to everyone (e.g. companies that benefit make larger profits (in numerical amounts at least) so they pay higher taxes, government takes the tax receipts and spends it creating jobs, more taxes etc, investors and shareholders receive higher dividends etc).
    So, QE is not the same as theft because across a spectrum of an entire population we have more £s in "our" pockets - albeit that £200bn doesn't buy what it used to. Theft is the taking of something with the intention to permanently deprive. QE is the watering down of the money in our pocket that still buys the same amount of stuff.
    The reason QE is unsustainable as a form of monetary policy is that investors refuse to keep lending money to a government that keeps watering down their investment. The BoE took the decision (with the last government) that it could probably get away with creating £200bn out of thin air and putting into the economy, thus watering down our debts a small amount, but can't do more of it without vexing the bondholders to a dangerous level.

  • Comment number 94.

    When will the markets wake up to the fact that to all intense and purposes Spain is bankrupt. Their banks counter party exposure to the Portugese financial crises and their woefully misleading & deceptive accounting of their exposure to the property market needs to be laid bear. They need to recapitilize their banks by at least £100 Billion. The ECB stress tests are a joke. It is all going to end in tears !!!

  • Comment number 95.

    @busby2
    "Your comment that the Euro was all a bit of a trail and effort with one currency and 17 countries would be amusing if it wasn’t for the misery this has brought many countries unfortunate enough to be members of the Euro Zone. The fact is that the Euro Zone was first and foremost a political project and little or no thought was given to the economic realities of running one currency across 17 countries."

    Misery - hardly. Which country was brought misery by the Euro. None at all.

    Greece and Ireland had a party - that does not sound like misery.

    Germany had extremely low growth in that period of the Euro - but it managed to reduce its unemployment through structural changes and low wages growth. Also no misery there.

    Now the whole thing has to be re-adjusted the other way. That is good. The Euro provides just the flexibility to do that.

    Compare that with a one currency area which has also one transfer policy. The UK for example. The jobs which were lost in the North East or in the Welsh Valleys have not come back, after they were destroyed. Why - because you now have more people unemployed or on incapcity benefit in these areas, as they have no possibility to make themselves competitive. They are getting state transfers. The euro allows countries to become competitive again, as there is no transfer union. Impossible to do the same in Britain.

    And just because the manipulated bond markets are not functioning, and are taken hostage by hedge-funds, who speculate with Credit Default Swaps that countries go bust is not misery. And the fact that nobody thought it was important to keep to the rules, does not mean that the rules will not be kept to in the future.

    However, as you I think ever closer union is a bad idea, because that would help big business and bring about a massive transfer union. But that is not generally on the agenda any more. That is some 90s slogan. All Europeans are against that now.

  • Comment number 96.

    @stanblogger
    "Perhaps it is not a bad idea if the ECB supplies the euros which Greece, Ireland and Portugal need to repay their sovereign debts, instead of relying on Germany to lend the money at exorbitant rates. The alternative is deeper and deeper cuts in these countries, causing more unemployment and misery, and even the likes of Germany and the UK would suffer because of the loss of markets. "

    Well, the ECB is doing exactly that at the moment. They provide liquidity to Ireland, Portugal and Greece, some massive 350 billion Euro worth. And they hold 80 billion of bonds of these three countries.

    That is why Jean-Claude Trichet is every hedgefund manager's enfant terrrible, who with his underground operations, straight out of "Allo, Allo" scuppered all their strategies of having a decisive win. And which means, that the longer the ECB supports these countries - the less likely it is that they ever will cash in on their Credit Default Swaps.

    However - a straight forward ban on Credit Default Swaps would, of course, make a end to the eurocrisis even more likely. It is about time that that is done!

  • Comment number 97.

    defaults...bailouts... debt... blah blah
    BAH
    take the worthless bits of paper we call money outside into the streets and light huge bonfires

  • Comment number 98.

    50. At 19:57pm on 24th Mar 2011, Payguy wrote:
    Matt-Us

    The UK repaid its debt to the US after WW2 without putting in place austerity programs.

    In fact the opposite - the Governemtns of the day increased public spending by introducing the NHS and welfare state. This triggered huge growth in GDP, increased tax revenues and full employment.
    -------------------------------------------------------------------------------
    And with some help from inflation .....

  • Comment number 99.

    50. At 19:57pm on 24th Mar 2011, Payguy wrote:
    Matt-Us
    The UK repaid its debt to the US after WW2 without putting in place austerity programs.
    ==================
    Wasn't it a couple of years ago i.e. after 60 years that we finished repaying it?

  • Comment number 100.

    "So, QE is not the same as theft because across a spectrum of an entire population we have more £s in "our" pockets - albeit that £200bn doesn't buy what it used to."

    Surely that is just redistributing the wealth from our pockets into someone else's. I.e., stealing. Its not like our wages are going up by the same percentage as the money supply.

 

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