• This is a political forum that is non-biased/non-partisan and treats every person's position on topics equally. This debate forum is not aligned to any political party. In today's politics, many ideas are split between and even within all the political parties. Often we find ourselves agreeing on one platform but some topics break our mold. We are here to discuss them in a civil political debate. If this is your first visit to our political forums, be sure to check out the RULES. Registering for debate politics is necessary before posting. Register today to participate - it's free!

Portugal Suffering Greek Contagion Pressures EU Bonds

donsutherland1

DP Veteran
Joined
Oct 17, 2007
Messages
11,862
Reaction score
10,300
Location
New York
Gender
Male
Political Leaning
Centrist
Aside from the well-publicized episode of Greece's ongoing debt crisis, Bloomberg.com reported the following concerning Portugal:

With a higher debt burden and a slower 10-year growth rate than Greece, Western Europe’s poorest country is being punished by investors as the sovereign debt crisis spreads. The risk premium on Portuguese bonds rose to more than double the past year’s average this month. Portugal’s credit default swaps show investors rank its debt as the world’s eighth-riskiest, worse than for Lebanon and Guatemala...

While Portugal’s public debt of 77 percent of gross domestic product is on a par with that of France, the burden including corporate and household debt exceeds that of Greece and Italy, at 236 percent of GDP. The savings rate is the fourth-lowest among 27 members of the Organization of Economic Cooperation and Development, according to the Paris-based group’s data.

Portugal Suffering Greek Contagion Pressures EU Bonds (Update1) - Bloomberg.com

One of the key dynamics in play is confidence. Portugal is currently experiencing rising risk premiums on account of diminishing confidence. Down the road, if the U.S. fails to develop and implement a credible fiscal consolidation program (discretionary spending reductions, mandatory spending/health-reform, modest tax hikes), the U.S. could see confidence begin to deteriorate in its fiscal sustainability.

To put things into perspective, the U.S., the broadest measure of U.S. debt (domestic non-financial debt) amounted to 240% of GDP in 2009 Q4. Despite deleveraging from the severe recession, household debt remains at an elevated 94% of GDP. The federal debt is projected to rise rapidly according to CBO to 90% of GDP within a decade. Barring fiscal consolidation, and also improved household saving, it would not be out of the question for the U.S. to begin to experience symptoms of growing concern about its fiscal situation (relatively higher long-term yields, possible failed debt offering on one or more Treasury auctions, emerging demands that it price Treasuries in foreign currency to avoid partial default via inflation, etc.) some time over the next 5-10 years. At the same time, its being placed on negative outlook by the major ratings agencies even sooner is probably more likely than not, as in the short-run ideological considerations (Democratic positions on entitlement spending/Republicans also now treat Medicare as untouchable; Republican positions on taxes) appear greater than commitment to difficult pragmatic fiscal consolidation choices.
 
This has more to do with speculators and anti-Euro people than anything else.
 
This has more to do with speculators and anti-Euro people than anything else.

Pete,

I agree that there is a speculative element to the situation. Unfortunately, when fundamentals are weak, commitment to addressing structural problems is ambiguous, and confidence is low, an environment is attractive for speculative moves that can exacerbate the situation.
 
"down the road" is now, here, suddenly upon us

ny times story, november: debt service, mere interest alone, will approach one trillion per year by about 2016

News Headlines
 
"down the road" is now, here, suddenly upon us

ny times story, november: debt service, mere interest alone, will approach one trillion per year by about 2016

News Headlines

Right now, confidence in U.S. fiscal sustainability has not dissipated. The U.S. does not face an imminent debt crisis.

Perhaps in 2011 or 2012, the U.S. will be put on negative outlook if it does not have a credible fiscal consolidation strategy. Afterward, failure to adopt such a program could lead growing symptoms of a gradually rising debt crisis e.g., relative increase in long-term rates, etc.
 
Pete,

I agree that there is a speculative element to the situation. Unfortunately, when fundamentals are weak, commitment to addressing structural problems is ambiguous, and confidence is low, an environment is attractive for speculative moves that can exacerbate the situation.

Oh I dont disagree one bit. Greece got into this mess themselves and need to get out of it. They have very little credibility on top of that.

But what pisses me off is speculators that are allowed basically bring down whole nations and the lives of millions of people for profit, and often on the basis of not even owning the methods of what they are using to bring down said countries. They in fact "borrow" it from others in many cases, and hope to make a quickish buck on it. This kind of speculation must be stopped.. to speculate you need to own whatever you are speculating in. If you are speculating in oil, then you physically need to buy the oil and stockpile it. And that is my point.

In Portugal's situation, it is very clear that it is the speculators that have pushed up the yield. Same was it for Spain earlier this year, and last year it was the 150 dollar oil. The fundamentals of the Portuguese economy has not changed that dramatically over the last 5 years. Sure they are in a budget deficit but so is most of the planet. Their debt is about the average of the EU and western world and their unemployment is not massively high. They have a lot of structural problems, but so do Italy, Spain, France, Germany, UK and US on different areas, and these problems have been around for decades.

In the end it is just another attack on the idea of the Euro and Eurozone by people outside the economic union it self. It is always ironic that the biggest anti Euro personalities are people from the US and UK who have nothing to do with the Euro but see it as some kind of threat to their supposed dominance of the world economic market. This has been going on since day 1 of the Euro and with the crisis these people have seen and opening to attack the Eurozone to weaken it.

In the end we must ask ourselves, should we allow "someone" to speculate with the lives of millions of people for profit. I say no and hope to god the Eurozone gets a pair of balls and start going after these pathetic excuses for human beings.
 
Right now, confidence in U.S. fiscal sustainability has not dissipated. The U.S. does not face an imminent debt crisis.

Perhaps in 2011 or 2012, the U.S. will be put on negative outlook if it does not have a credible fiscal consolidation strategy. Afterward, failure to adopt such a program could lead growing symptoms of a gradually rising debt crisis e.g., relative increase in long-term rates, etc.

Thats because the financial markets are ignoring the obvious and are hoping for the good old days where the US was the engine of growth based on its consumer power. Those days are gone but they cant admit it.

The amount of debt in government on all levels in the US dwarfs any problems in Europe but it seems not to matter for now. Add to that the massive amount of personal debt in the US (non secured aka credit cards and so on) and you have a ticking time bomb of gigantic proportions that no one wants to discuss at all in fear of it might go off.
 
Thats because the financial markets are ignoring the obvious and are hoping for the good old days where the US was the engine of growth based on its consumer power. Those days are gone but they cant admit it.

The amount of debt in government on all levels in the US dwarfs any problems in Europe but it seems not to matter for now. Add to that the massive amount of personal debt in the US (non secured aka credit cards and so on) and you have a ticking time bomb of gigantic proportions that no one wants to discuss at all in fear of it might go off.

Ratings agencies are typically behind the curve when it comes to risk. There is a bias toward continuity. Hence, as the actual risk profile of an entity (state or firm) deteriorates, the gap between the actual risk and the risk implied by the ratings agencies grows. Unfortuntely, in behavioral studies, there is a pronounced human bias toward the status quo. Hence, when risk situations change, there is an invariable need to catch up. IMO, financial conservatism (erring on the side of assuming too much risk) would be better than maintaining a bias toward continuity.

In that context, I believe Greece should have had its debt rating at junk status months ago. The combination of annual budget deficits > 8% of GDP, gross public debt > 120% of GDP/net government debt > 100% of GDP, a current account deficit of nearly 10% of GDP suggested a country at high risk of default consistent with numerous past sovereign debt crises. To date, even as the Greek government has tried to cast itself as taking 'heroic measures' to deal with its debt situation, it appears that its steps are rather timid and more will be expected by the IMF.

With respect to the U.S., I believe the U.S. should already be on negative outlook (something I think probably won't happen until 2011 or 2012). The U.S. has no credible fiscal consolidation plan. The two political parties appear unwilling at present to consider the difficult choices necessary for such a plan. Domestic non-financial debt, gross public debt, net public debt are all rising. The current account deficit has ticked up in the recent quarter and is expected to rise further, though it remains well below the excessive current account imbalances for Greece and Portugal.

Having said all that, I do believe the IMF, EU, and U.S. should collaborate on designing mechanisms that reduce the damage that could be inflicted by speculative attacks, though I don't see how speculation could be prevented altogether. There are too many financial instruments that could be combined to create synthetic instruments that would serve the speculative interests. Imposing capital requirements for naked positions could offer one potential circuit-breaker so to speak and such requirements could also serve a risk mitigation function, too.
 
Perfect examples of what happens when politicians create a pervasive entitlement mentality with lame Marxist-leftist rhetoric - this is the welfare state run amok; Obama and company are of the same stripe.
 
Greece, like the U.S., has an assortment of mandatory spending programs (health and pension) with huge long-term imbalances. In a separate IMF report, the IMF projected that Greece's gross public debt could soar to 800% of GDP on the current policy path. Unlike the U.S., at least so far, it had a bad information reporting system and that might have further undermined fiscal decisionmaking.

For a quick summary, here's what the IMF wrote during its 2009 Chapter IV consultation.

Greece is entering the downturn with an already weak fiscal position. Failures to stick to budget plans, deficit-increasing one-off measures, expenditure slippages, and ad-hoc revenue efforts have coincided with persistent deficits above 3 percent since 2000... Indeed, as monetary conditions had been accommodative, fiscal policy had not been nearly tight enough during the boom years. Social transfers have increased by over 3 percentage points of GDP, outpacing social contributions. The wage bill has also been rising. In this context, the European Commission has reinvoked the EDP for Greece, asking to reduce the deficit below 3 percent by 2010. Staff is concerned that large and growing data discrepancies (including “stock-flow adjustments”) between cash accounts and those of the consistently rises faster than indicated by the SGP deficits reported to Eurostat. Restoring confidence requires durable consolidation and improved accounting systems that allow the authorities to respond in a timely way to slippages and the publication of more stable fiscal indicators...

Staff projects the headline deficit to widen and public debt to increase sharply in 2009 and 2010. With staff’s projection of economic contraction and if no further measures are taken, the general government deficit is expected to reach 6.2 percent of GDP in 2009 and 7.5 percent in 2010... Including the banking assistance package, public debt could rise to 109 percent of GDP in 2009 and 115 percent of GDP by 2010.


FWIW, Greece did worse than the IMF projections in the above paragraph.

If Greece is to achieve lasting fiscal stabilization, it will need to make significant and lasting cuts in its pension and health benefits system (something the U.S. will also need to do to address its long-term benefits) and implement a robust mechanism that contains the future growth of those programs despite a rapidly growing aged population. For Greece, the time for such action is now, not at some unknown point in the future.
 
Last edited:
If Greece is to achieve lasting fiscal stabilization, it will need to make significant and lasting cuts in its pension and health benefits system

no kidding

but it's too late

and the commies on the streets won't let em

Violent protests hit Greece as German backing sought

hello

My Way News - World markets tumble as euro debt crisis escalates

ouch

such serious syntax: "CONTAGION is the buzz word," "the euro area is now facing a real EXISTENTIAL THREAT..."

spain is next, as you know

my, my
 
Perfect examples of what happens when politicians create a pervasive entitlement mentality with lame Marxist-leftist rhetoric - this is the welfare state run amok; Obama and company are of the same stripe.

Considering most US debt came under Reagan, Bush Sr. and Bush Jr. then well this comment is a load of horse manure.
 
no kidding

but it's too late

and the commies on the streets won't let em

Violent protests hit Greece as German backing sought

hello

My Way News - World markets tumble as euro debt crisis escalates

ouch

such serious syntax: "CONTAGION is the buzz word," "the euro area is now facing a real EXISTENTIAL THREAT..."

spain is next, as you know

my, my

First off, the Greeks have ALWAYS protested violently, since the dawn of time.

As for Spain, explain that. Spain's debt is lower than the US and UK, and their budget deficit is also lower.
 
Greece, like the U.S., has an assortment of mandatory spending programs (health and pension) with huge long-term imbalances. In a separate IMF report, the IMF projected that Greece's gross public debt could soar to 800% of GDP on the current policy path. Unlike the U.S., at least so far, it had a bad information reporting system and that might have further undermined fiscal decisionmaking.

For a quick summary, here's what the IMF wrote during its 2009 Chapter IV consultation.

Greece is entering the downturn with an already weak fiscal position. Failures to stick to budget plans, deficit-increasing one-off measures, expenditure slippages, and ad-hoc revenue efforts have coincided with persistent deficits above 3 percent since 2000... Indeed, as monetary conditions had been accommodative, fiscal policy had not been nearly tight enough during the boom years. Social transfers have increased by over 3 percentage points of GDP, outpacing social contributions. The wage bill has also been rising. In this context, the European Commission has reinvoked the EDP for Greece, asking to reduce the deficit below 3 percent by 2010. Staff is concerned that large and growing data discrepancies (including “stock-flow adjustments”) between cash accounts and those of the consistently rises faster than indicated by the SGP deficits reported to Eurostat. Restoring confidence requires durable consolidation and improved accounting systems that allow the authorities to respond in a timely way to slippages and the publication of more stable fiscal indicators...

Staff projects the headline deficit to widen and public debt to increase sharply in 2009 and 2010. With staff’s projection of economic contraction and if no further measures are taken, the general government deficit is expected to reach 6.2 percent of GDP in 2009 and 7.5 percent in 2010... Including the banking assistance package, public debt could rise to 109 percent of GDP in 2009 and 115 percent of GDP by 2010.


FWIW, Greece did worse than the IMF projections in the above paragraph.

If Greece is to achieve lasting fiscal stabilization, it will need to make significant and lasting cuts in its pension and health benefits system (something the U.S. will also need to do to address its long-term benefits) and implement a robust mechanism that contains the future growth of those programs despite a rapidly growing aged population. For Greece, the time for such action is now, not at some unknown point in the future.

Actually Greece need to implement a tax system that actually takes in taxes to pay for stuff. Cutting and cutting wont do jack**** because the real problem lies in a very weak taxation system that makes it very easy to not pay taxes at all, especially for the rich and business owners. That is what much of the protests are about. Tax evasion is a national sport in Greek.

That does not mean that they dont have to get their house in order, but seriously think about it. Cut their pension system? You want retired people to be living on the streets? As for the health system, it is so corrupt. In Greece you can pay your way ahead of others in the public system because the doctors take bribes. I suspect there is a lot of waste in the system due to this corruption.

But the biggest thing that Greece has to do, is to regain the trust of the world markets and nothing will change as long as there is no trust and that again comes back to corruption in government that resulted in false information about debt ratios and budget deficits to be fed to the world markets and the EU.

As for Portugal, they are sadly being caught up in this along with other nations who are no where near the problematic economic situation of Greece. But as long as you can hedge against countries then speculation will hurt small countries that cant fight off the big speculators, which is what we are seeing yet again here.

It is also ironic, that we never hear anything about Ireland.. their economic situation is far far worse than Portugal's, but never a peep about that.. odd no?
 
get your polysyllabic buddy to break it down

in the meantime, buy a tv

Oh I know what the TV is saying and if you bothered to listen you would see that many question why Spain is being put in the same category as Greece.

So explain why Spain is next? Why not Ireland, or the UK?
 
Considering most US debt came under Reagan, Bush Sr. and Bush Jr. then well this comment is a load of horse manure.

The Democrats controlled the Congress for the majority of Reagan and Bush Sr.'s terms.

Bush Jr. was not a conservative and neither were the Republicans.

Leftist-Marxist rhetoric and populist posturing is to blame for the unsustainable path Greece and the US finds itself on. Your lame apologia will not change that.
 
Actually Greece need to implement a tax system that actually takes in taxes to pay for stuff.

PeteEU,

I agree that revenue-raising measures will need to be part of any credible austerity package. But if the IMF's August 2009 projections of Greece's public debt rising to 800% of GDP by 2060 are correct, one will need fairly aggressive revenue increases and spending reductions to address Greece's fiscal imbalances.

Cut their pension system? You want retired people to be living on the streets?

No. If I came across that way, that was not my intent.

One can hold today's retirees harmless with respect to actual cuts while reducing benefit payments for future retirees. One can means-test retirees to determine whose benefits would immediately be reduced and whose would be left as they are. One can peg annual pension growth to inflation less a given percentage to slowly work out the imbalances. There are many ways to smooth the transition in bringing pension benefits in line with what can be financed.

As for the health system, it is so corrupt. In Greece you can pay your way ahead of others in the public system because the doctors take bribes. I suspect there is a lot of waste in the system due to this corruption.

To the extent that waste, fraud, and abuse can be cleaned out of the system, that would reduce other cost-saving measures.

But the biggest thing that Greece has to do, is to regain the trust of the world markets and nothing will change as long as there is no trust and that again comes back to corruption in government that resulted in false information about debt ratios and budget deficits to be fed to the world markets and the EU.

I agree. I believe Greece will need to offer a credible and transparent fiscal consolidation program to begin to regain trust. I have confidence that the Euro Zone will be up to the challenge in addressing Greece's immediate financing challenge. But the outcome of such financial relief will depend on Greece's efforts to address its structural imbalances.

As for Portugal, they are sadly being caught up in this along with other nations who are no where near the problematic economic situation of Greece. But as long as you can hedge against countries then speculation will hurt small countries that cant fight off the big speculators, which is what we are seeing yet again here.

I believe some of Portugal's debt-related challenges are of a magnitude that warrants reduced credit ratings i.e., structural budget deficit of nearly 8% of GDP and an enormous current account deficit of around 9% of GDP. Worse, that current account deficit is projected by the IMF to grow to 10.2% of GDP in 2011.

It is also ironic, that we never hear anything about Ireland.. their economic situation is far far worse than Portugal's, but never a peep about that.. odd no?

As for Ireland, I believe what has spared Ireland, at least so far, is that the country is running a small current account surplus, even as its structural budget deficit is about the same as Portugal's and its gross public debt is a little less than Portugal's. Ireland is also projected to see much more significant growth than Portugal in 2011 (+1.9% vs. +0.7%).
 
Last edited:
Last edited:
Considering most US debt came under Reagan, Bush Sr. and Bush Jr. then well this comment is a load of horse manure.
No doubt you'll be crowing that 5 years from now as well.
 
Back
Top Bottom