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Portugal

Portugal has until about June – just two months from now – to convince the financial markets
Portugal must find 9.7 bn euros to pay off a bond that comes due in September 2013.
Peter Spiegel, Financial Times, April 19, 2012

IMF rules prevent it from granting any new aid when a financing hole emerges over the course of the next 12 months

So if Portugal needs to go back to the financial markets in September 2013, that means it must be able to show the IMF such a plan is realistic 12 months in advance – or September 2012. And if a second bailout is to be organised, negotiations over what that package will look like will probably have to begin two or three months before that.
Which means Portugal has until about June – just two months from now – to convince the financial markets it is worthy.

Why Portugal May Be the Next Greece
The worst is over for the euro zone, the experts say.
But Greece isn't really fixed and
Portugal could become a second big problem before year-end
TIME March 27, 2012

Yes, Mussolini pulled off a 20pc cut in wages in the late 1920s.
How can a democracy bring about such cuts in private sector wages without use of police coercion?
Portugal, Italy, and Spain need an "internal devaluation" of around 20pc
to claw back competitiveness within EMU. This means draconian wage cuts for year after year.
Ambrose Evans-Pritchard, 5 April 2012

El-Erian's claim that Portugal has already lost the battle against the crisis is exaggerated.
The troika's bailout package is expected to keep the country going until September 2013 or so.
Der Spiegel 23 March 2012

That gives Portugal about one-and-a-half years to win back the financial markets' trust and wrestle interest rates on its government bonds back down to a level where the country can once again finance itself on the markets. Experts believe success is absolutely possible.

"There is hope that Portugal will be able to finance itself again by the end of 2013," says Francesco Franco, an economics professor at the Universidade Nova in Lisbon.

Bond fund giant PIMCO's chief executive said he expected Portugal to be the next euro zone country to falter, according to an interview in German weekly Der Spiegel.
El-Erian, also co-chief investment officer of PIMCO, said he expected Portugal's first bail-out package will be insufficient, prompting it to ask the EU and IMF for more money.

"Then there will be a big debate about how to split the burden between the EU, creditors, the IMF and the European Central Bank.

And then financial markets will become nervous because they are worried about private sector participation,"

Grece to exit euro and Portugal likely to be the next to restructure
Nouriel Roubini, CNBC 9 March 2012

With Greek unemployment at 22 percent and half the nation's youth unemployed, "the contractions are becoming severe. The country is still insolvent."
He goes so far as to predict that Greece "will be the first country to exit the euro zone, not this year, maybe later next year."

Last month the European Central Bank exercised its droit du seigneur, exempting itself from loses on Greek bonds.
The instant effect was to concentrate more loss on other bondholders.
"It does not matter how often the EU authorities repeat that Greece is a 'one-off' case, nobody in the markets believes them."
Ambrose Evans-Pritchard, 8 March 2012

The ECB holds €220bn of Greek, Portuguese, Irish, Spanish, and Italian bonds. Its handling of Greece implicitly subordinates private creditors in each country.

This might not matter too much if Greece were really a "one-off" case but markets are afraid that Portugal will tip into the same downward spiral as austerity starts to bite. Citigroup expects the economy to contract by 5.7pc this year, warning that bondholders may face a 50pc haircut by the end of the year.

Portugal's €78bn loan package from the EU-IMF Troika is already large enough to crowd out private creditors, reducing them to ever more junior status.

ECB har lånat ut 529,5 miljarder euro, motsvarande 4.670 miljarder kronor, till 800 banker.
Ungefär samtidigt steg Portugals marknadsräntor på löptider från tre år och med mellan 80 och 100 punkter.
Tioårsräntan hade strax efter 14-tiden stigit till 13,45 procent. Det är den högsta nivån på nästan en månad.
Viktor Munkhammar, DI 29 februari 2012

Is Portugal Next?
EU passed a €78 billion bailout package for Portugal last May to help the country stay afloat
until it could return to the international financial markets by the end of 2013.
That deadline, though, has looked increasingly untenable in recent weeks
Der Spiegel 10/2 2012

In a video clip apparently made without his knowledge at the meeting of euro-zone finance ministers, German Finance Minister Wolfgang Schäuble told his Portuguese counterpart Vitor Gaspar that Berlin would be willing to make adjustments to the Portugal bailout package.

Schäuble made clear that the Portuguese aid package could only be revisited once a "substantial decision on Greece" is made and with the support of the German parliament.

Gaspar told Portuguese reporters that Lisbon is not currently seeking an adjustment to the bailout package.

The European Union passed a €78 billion bailout package for Portugal last May to help the country stay afloat until it could return to the international financial markets by the end of 2013.
That deadline, though, has looked increasingly untenable in recent weeks as yields on 10-year Portuguese sovereign bonds exploded to over 17 percent in January before falling back to their current levels of around 13.5 percent.

De spanska bankernas osäkra fordringar,
som i huvudsak består av lån till den kollapsade fastighets- och byggnadssektorn,
Spanska banker har ingen stor utlåning till Grekland, men däremot till Portugal
uppgår till 7,6 % av bankernas tillgångar. En fördubbling sedan år 2008
Ekot 17 februari 2012

Voluntary
Why might Germany prefer a defaulted Greece to a rescued Greece?
The trouble with the PSI is that it may set off a wave of similar demands from deeply indebted countries.
If Greece can have its outstanding debt reduced, why shouldn’t other countries also get this treatment?
John Carney, Senior Editor, CNBC.com 14 Feb 2012

“The Irish are asking that question already, and I'm sure the Portuguese and Spanish will soon be asking the same thing,” writes former investment adviser Marshall Auerback at the website New Economic Perspectives.

He speculated that Germany might continue to demand ever more austerity in return for aid, declaring every possible agreement reached in Greece as unsatisfactory. Eventually, the Greek government would find itself unable or unwilling to make further budget cuts.

“In this way, Germany could force a Greek default without ever moving off their public stance supporting a bailout,” the hedge-fund manager said

Varför ska man sitta på portugisiska papper när Angela Merkel gjort klart att det är de privata långivarna som ska förlora.
Eftersom EFSM, ECB och bilaterala långivare tydligen ska hållas skadelösa blir det enbart de privata långivarna som får ta alla förluster.
Danne Nordling, 3 februari 2012

Those who have spoken to the chancellor say
she feels duped by those investors, who urged her to agree to a restructuring of Greece’s massive debt burden
but then told the chancellor that she had also made all other eurozone bonds suspect.
Financial Times, 4 December 2011

Också portugiserna behöver nu ytterligare stöd utifrån. För dem räcker resurserna i den nuvarande tillfälliga räddningsfonden, men inte för Italien eller Spanien
Johan Schück, DN Ekonomi 3 februari 2012

Jean-Claude Juncker, head of the Euro Group:
There will be no debt haircut for Portugal.
We have always said that Greece was a special case.
Der Spiegel, 6 February 2012

There, it was necessary to have a certain participation of the private sector (in debt relief).

Portugal - The next special case?
The country’s task is to regain wage and price competitiveness so that it can grow its way out of its debts
Amid recession, the country ran a current-account deficit of more than 8% last year
The Economist prinst 4 February 2012

More market alarm bells on Portugal
The implied interest rate rose by more than one percentage point to well over 21%
Stephanie Flanders, BBC Economics editor, 30 January 2012

European leaders some day fairly soon will have to decide whether and how to give Portugal additional support,
and come to terms with the reality that the government is unlikely to be able to go back to borrowing on the global financial markets in 2013,
as its current rescue plan assumes.

Med undantag för möjligen Grekland och Portugal, så har det stora problemet inte varit att ländernas statsfinanser utvecklats olika,
utan att olikheterna i länders privata sektorer ökat sedan harmoniseringen av penning- och finanspolitiken.
Daniel Somos. Newsmill 31 januari 2012

Portugals statsobligationer
Europaktens krav på drastiska ”pro-cykliska” besparingar
Den privata sektorn får ta på sig i stort sett hela kreditrisken.
Inga av de föreslagna åtgärderna har adresserat den underliggande orsaken till ländernas problem: den svaga konkurrenskraften
Per Lindvall, e24, 30 januari 2012

Utvecklingen för Portugals statsobligationer, där den 10-åriga obligationen har skenat och nu ligger över 15 procent, visar att problemen är långt ifrån lösta.

Många av de åtgärder som ligger i stöpsleven kan förvärra läget. Det gäller exempelvis den så kallade europaktens krav på drastiska ”pro-cykliska” besparingar och det alltmer tydliga förhållandet att ”officiella” nödfinansiärerna, ECB, EU samt räddningsfonderna EFSF och ESM ska ha en prioriterad ställning framför de privata obligationsköparna.

Det senare innebär att den privata sektorn får ta på sig i stort sett hela kreditrisken. Det gör att det riktigt frivilliga privata intresset för att ta på sig risk är mycket lågt och kan försvinna helt när stämningsläget försämras.

En annan kanske viktigare brist är att inga av de föreslagna åtgärderna på ett rakt och trovärdigt sätt har adresserat den underliggande orsaken till ländernas problem: den svaga konkurrenskraften och den höga externa nettoskulden. För utan en bättre konkurrenskraft, och därmed förstärkt exportsektor som kan finansiera räntor och även amorteringar på denna skuld, så är riskerna för betalningsinställelse och behoven av skuldavskrivningar fortsatt mycket stora.

Inställer Grekland betalningarna måste eurozonen agera blixtsnabbt för att visa att den inte låter Portugal gå samma väg.
Grekland omtalas alltmer sällan som ett specialfall skriver
Timothy Garton Ash, kolumn, DN.27 januari 2012

Forget Greece; it’s Portugal that’ll destroy euro
Commentary: One default is an accident; two is a systemic crisis
MarketWatch Jan. 25, 2012

It is a long-time since Portugal played a decisive role in world history. The Treaty of Tordesillas, which divided the non-European world up between Spain and Portugal in 1494, was probably its last major contribution, and even that did not end very happily.
But 2012 could be the year Portugal explodes onto the world stage again.

How? By blowing up the eur

Greece is already bust — and its default is already priced into the market. But Portugal is in precisely the same position, just on a longer fuse.

It too is sliding toward an inevitable default on its debts — and when it does so, it will deliver a terminal political blow to the single currency, and inflict damage on the European banking system that may well prove catastrophic.

S&P’s downgrade of Portuguese sovereign bonds to junk status has forced many funds to offload bonds.
With S&P’s decision, all rating agencies now rank Portugal as below investment grade.
Portuguese 10-year spreads have risen to over 13% - about 3pp up from last week.
Eurointelligence, 18 January 2012

It’s now clear that Greece, Ireland and Portugal can’t and won’t repay their debts in full,
although Spain might manage to tough it out
Paul Krugman, New York Times, 22 May 2011

Europe’s crisis is all about the north-south split
Anticipating the euro, drachma-denominated 10-year sovereign bonds fell more than 450 basis points
relative to German Bund rates in the three years leading up to Greece’s adoption of the euro in 2001.
Likewise, Portugal and Italy
Alan Greenspan, FT October 6, 2011

Portugisiska och grekiska bönder vill helt enkelt inte att nogräknade tyskar och svenskar i demokratisk ordning reformerar, det vill säga lägger ned, deras jordbruk.
Carl Hamilton i Aftonbladet 1999-06-10

Jag vill understryka att detta inte på något vis kan sägas vara någon ensidigt portugisisk lättsinnighet.
Kreditgivarna – främst tyska och franska banker – var lika glada att få låna ut som portugiserna var att få låna.
Klas Eklund i SEB-rapport 27 maj 2011

A day after Portugal formally requested aid from the European Union to help ease ongoing debt problems,
Madrid on Friday insisted that it was "out of the question" that Spain would be next.
German commentators aren't so sure, and say that it's time for European leaders to reveal the true extent of the problems.
Der Spiegel 8/4 2011

In the colonies it used to be said of Britain that Britannia did not rule the waves as much as it waived the rules.

If the European Union now accedes to Portuguese prime minister José Sócrates’ request last night for emergency funding to tide Portugal over until after its June 5 election, it will demonstrate that the European Commission is offering the Britannia of old some serious competition in the realm of disregarding its own rules.

Last year, under the threat of impending damage to the European banking system from potential debt defaults in the periphery, the EU effectively abandoned the “no bailout” clause of the Lisbon Treaty.

Portugal will follow Greece and Ireland to failure
IMF and EU appear set to do so by prescribing for Portugal the same failed policy approach of savage fiscal retrenchment in the most rigid of fixed exchange rate systems that has had such dismal results to date in Greece and Ireland.
Desmond Lachman,FT March 31 2011

It would have been better for Lisbon to tough it out in the markets for a few more months. Having to pay even several percentage points more to refinance the €12bn due between April and June makes little difference to the €144bn debt outstanding.

It may have been inevitable, but it was a sad moment for Portugal:
Europe’s oldest nation state brought low
This newspaper has repeatedly argued that
the debts of Greece, Ireland and Portugal are unpayable and must be restructured
The Economist print Apr 7th 2011

Det finansiella läget för Portugal är nu så pressat att landet inte klarar sig utan den typ av stödpaket som Irland och Grekland fick av EU och IMF i fjol.

Mr Socrates did not say how much aid Portugal would ask for.
BBC's business editor Robert Peston said rescue loans could amount to as much as 80bn euros ($115bn; 725 miljarder kr).

One has to wonder how much deeper the economic recessions in Greece, Ireland, and Portugal will have to become for the IMF and the EU to recognize that the countries in the periphery suffer from solvency rather than liquidity problems, that are not amenable to correction by fiscal retrenchment alone in a fixed exchange rate system.

The risk is that, before they do, the electorates in Greece, Ireland, and Portugal will revolt against seemingly endless economic hardship to which they are being subjected for the sake of keeping them current on their debt obligations to foreign financial institutions.

Standard & Poor’s downgrading of Portugal’s sovereign debt made clear that the primary cause
was the concluding statement of the European Council meeting of March 24-25.
Jeremy Warner, Daily Telegraph March 29th, 2011

"If, on the basis of a sustainability analysis, it is concluded that a macro-economic programme cannot realistically restore the public debt to a sustainable path, the beneficiary Member State will be required to engage in active negotiations in good faith with its creditors to secure their direct involvement in restoring debt sustainability."

So that’s it. Greece, Portugal and Ireland are all heading for a big debt restructuring, which means that private investors are going to have to bear the costs of a considerable part of the fiscal adjustment. It’s what bond markets have been saying for more than a year now, and of course it is what the political left has been demanding too.

The total exposure of foreign banks to the struggling quartet of
Greece, Ireland, Portugal and Spain tops $2.5 trillion
once all forms or risk are included, according to the latest data from BIS
Ambrose Evans-Pritchard 14 Mar 2011

Portuguese debt yields soared to new records. The 10y bond hit 7.9%
El Pais writes that even the ECB, which returned to secondary markets after three weeks of absence to buy €432m in government debt last week, could not halt this.
Portugal needs to repay or rollover €4.3bn of bonds maturing on April 15
and another €4.9bn in June
Eurointelligence 29/3 2011

Though unconfirmed, only substantial liquidity support from the European Central Bank is keeping the financial systems and, indirectly, the governments of peripheral states such as Ireland, Portugal and Greece alive,
their banks often acting as conduits to supply funds for nations effectively locked out of private capital markets
The Independent 1 April 2011

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.
Robert Peston, the BBC's business editor, 24 March 2011

William White, chairman of the Organization for Economic Cooperation and Development's Economic and Development Review Committee,
talks about Portugal's debt and budget and the outlook for a possible international rescue.
Bloomberg March 24 2011

To cover Portugal’s deficit and bond repayments for three years,
the bail-out would have to be between €60bn and €70bn.
Open Europe 24/3 2011

Pressure on Portugal's economy intensified on Thursday as the interest rate on the country's 10-year bonds climbed to a new high of 7.91%.
Portugal faces bond repayments of 4.3bn euros on 15 April

Skuldkrisen i EMU är av allt att döma på väg in i ännu en kritisk fas.
Det stora orosmolnet är inte Portugal utan Spanien.
Viktor Munkhammar, DI 24/3 2011

Tanken var att helgens EU-toppmöte skulle innebära ett slut på den improviserade brandsläckning som hittills präglat EMU:s hantering av skuldkrisen. I stället skulle eurozonen börja blicka framåt och ta itu med grundläggande problem som bristande konkurrenskraft.

Tyvärr verkar det som att det blir brandsläckning igen. Men med tanke på hur lågt förväntningarna har sjunkit finns potential för positiva överraskningar.

The opposition parties appeared to be responding to the public mood in Portugal, which had turned against the belt-tightening.
Der Spiegel 24/3 2011

The government's efforts to sort out the country's finances with tax increases and cuts in welfare spending had led to a wave of strikes. Tens of thousands of people recently held protests against precarious working conditions, unemployment and the austerity measures.

Portugal väntas i april be om ett stödpaket från EU och IMF, rapporterar Reuters med hänvisning till källor i eurozonen.
– Det är redan en utbredd uppfattning på finansmarknaden, men nu har även EU:s finansministrar börjat inse detta, säger en källa.
DN/TT 18/2 2011

ECB intervened in the markets on Friday to prevent Portugal’s borrowing costs spiralling to “danger levels”
that could force Lisbon to seek international assistance.
FT February 18 2011

Portugal
Åtstramningarna som har framtvingats av marknaderna gör saken inte bättre, i alla fall inte på kort sikt. Medan länder som Tyskland och Sverige växer så det knakar väntas Portugals BNP sjunka i år,
precis som investeringarna, sysselsättningen och den offentliga och privata konsumtionen.
Hur Portugal i det läget ska klara av att sänka budgetunderskottet är för många en gåta.
Tomas Lundin, SvD Näringsliv 12/1 2011

I fredags meddelade visserligen att premiärminister Sócrates att budgetunderskottet gått ner till 7,3 procent. Men han undvek noga att berätta att regeringen plundrat halvstatliga telebolaget Portugal Telecoms pensionskassa för att klara sina utfästelser gentemot EU.

Portugal planerar i år att låna upp 18-20 miljarder euro med nya obligationslån
Totat löper portugisiska obligationer för 9,5 miljarder euro ut 2011, varav 4,5 miljarder i april.
SEB:s ekonomer ser onsdagens försök i Portugal att ta upp obligationslån för sammanlagt 1,25 miljarder euro (cirka 11 miljarder kronor) som "ett viktigt test".
Ekot 10/1 2011

"Om den auktionen går dåligt ökar risken rejält för att Portugal inom kort måste följa Irland och söka hjälp", skriver SEB i ett marknadsbrev.

Yep, Portugal’s 10-year debt is yielding more than 7 per cent
Neil Hume FT Alphaville Jan 06 2011

Irish 10-year yields have been climbing to 9%, Greek 10-year yields to over 12%,
well into territory where investors are factoring in a non-trivial default risk.
Eurointelligence 6/1 2011

Portugal is the next example of a country to demonstrate that austerity in the middle of a financial crisis is a sure recipe for disaster.
The mood in the bond markets is deteriorating sharply, as Portuguese, and Spanish, spreads reach new records,
amid expectation that the crisis is very certain to spill over to Portugal, and possibly even to Spain.
FT Deutschland makes the remark the Portuguese spreads are about as high now as the Greek spreads
were ahead of the rescue.
Eurointelligence 24/11 2010

Portugal’s minority government is to unveil a tough austerity budget on Friday
amid fears that opposition parties will fail to provide the necessary support
FT October 15 2010

The 2011 budget proposals are designed to reassure financial markets that Portugal, one of the eurozone economies most vulnerable to a sovereign debt crisis, will meet its ambitious deficit-reduction targets.

But a political crisis sparked by the budget vote would destroy the positive impact on Portugal’s borrowing costs of planned austerity measures, including a 5 per cent cut in public sector pay and a pension freeze.

Portugal
That is what happens when you cut interest rates suddenly from 16 to 3 per cent
yields back to May crisis levels when the EU faced its "Lehman moment"
Ambrose Evans-Pritchard, 19 Sep 2010

Portugal was a net foreign creditor in the mid-1990s. EMU has turned it into a net foreign debtor to the tune of 109pc of GDP. That is what happens when you cut interest rates suddenly from 16pc to 3pc.

Be that as it may, the comments struck a nerve. Yields on 10-year Portuguese debt surged to 6.15pc, back to May crisis levels when the EU faced its "Lehman moment" and launched a €750bn (£625bn) rescue blitz.

The brutal truth is that Portugal lost competitiveness on a grand scale on joining EMU and has never been able to get it back.
Convergence never came.

Help Portugal Help Greece
The real fun begins if Spain’s cost of borrowing rises above the pooled loan rate.
It has to lend €9.8 billion to Greece.
Charles Forelle, Real Time Brussels, WSJ 5/5 2010

As of a few minutes ago, the yield on a two-year Portuguese bond stood at 5.66% and the yield on a 10-year at 6.13%. Both yields are up substantially from yesterday. It now seems clear that Portugal’s cost of borrowing the €2 billion it is putting toward the Greek bailout now exceeds the interest rate Greece will pay. (We earlier detailed the rate calculations; three-year Euribor is 1.73% today, so the bailout rate is 4.73%, plus a 0.5% service charge in the first year.)

But European Commission officials say a special clause in the bailout deal prevents any country from taking a loss on its Grecian lending. So the other 14 countries will cede a small bit of their profit to Portugal.

If we assume Portugal’s cost of borrowing for three years is around 5.75%, it will need a subsidy of about 0.5% in the first year and 1% annually thereafter, or €50 million over three years on its €2 billion loan.
We figure Germany and the rest can afford that.

The real fun begins if Spain’s cost of borrowing rises above the pooled loan rate. It has to lend €9.8 billion to Greece.

A country such as Portugal with total debt of 300pc of GDP, a current account deficit of 11.2pc, and a budget deficit of 9.4pc should not think it has the luxury to trim spending at a leisurely pace.
Portugal has an ugly choice. If it tightens hard to soothe bond markets, it too risks depression. EMU's Faustian Pact is closing in.
Ambrose Evans-Pritchard, 25 Apr 2010

We are in the Maastricht madhouse, a currency union without a treasury, ruled by the "no bail-out" clause of Article 125 of the EU Treaties. Europe is at last paying the price for fudging the true implications of EMU 19 years ago in that Medieval city on the Maas, gambling that it would one day be able to lead Germany by the nose into a debt union.

Portugal's economy
The importance of not being Greece
The Economist print April 22nd 2010

Portugal is doing better than Greece. So why are markets fretting over Lisbon’s debt burden (yields on two-year bonds have risen to 4.8%)? And why have such figures as Simon Johnson, a former IMF chief economist, and Nouriel Roubini, a New York economics professor once labelled Dr Doom, said that a Greek-style crisis could infect Portugal?

One answer is that Portugal’s biggest problem is not primarily fiscal. It concerns growth—or the lack of it. Real GDP growth over the decade since Portugal joined the euro has been the slowest in the zone, despite a boom in Spain, its main trading partner.

Low growth reflects a disastrous loss of competitiveness since the country joined the euro. Portugal has lost export-market share to emerging economies (including those of eastern Europe) that churn out similar low-value products.