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Contagion hits Portugal as Ireland dithers on rescue

today:

With the government in struggling Portugal on the verge of collapse, European leaders faced an uphill task Wednesday to agree on the stronger defences needed to resolve a threatening debt crisis. Leaders from the 27 European Union states locked horns Thursday and Friday in Brussels on how to best remedy a crisis which has jeopardised the future of the whole euro project and claimed Greece and Ireland as victims last year.

The meeting also comes against a troubled backdrop of differences over military action in Libya and fears of a major nuclear safety crisis in Japan.

The debt crisis will consume most of their energies, with leaders supposed to come up with a definitive, comprehensive action plan just at the moment when the Portuguese government looks likely to fall, forcing Lisbon into seeking a major bailout.

Protesters have erected giant banners railing against austerity measures imposed by cash-strapped governments near EU headquarters as police braced for some 20,000 demonstrators set to snarl Brussels traffic on Thursday.

Economists increasingly expect Lisbon to have to call for emergency loans. The last Moody's downgrade heaped the pressure on Lisbon, forcing it to pay ever higher rates of return to raise fresh funds to cover maturing debt. The benchmark Portuguese 10-year bond yield hit 7.464 percent just before 1400 GMT, an unsustainable level for the long term.

Lisbon must repay nine billion euros ($12.9 billion) of debt by June 15. A Portugal bailout would come at the worst possible time, not least because it would have to be sourced from an emergency fund, the temporary European Financial Stability Facility, worth 440 billion euros. Already tapped by Ireland, the amount the fund can actually lend today, allowing for a required buffer, is about 200 billion euros.
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Portugal tip of iceberg as Euro leaders tackle debt woes - Yahoo! UK & Ireland Finance
 
this is pretty big news, there are massive social and political and economic changes sweeping the union

France and Italy have thrown down the gauntlet over Europe's system of passport-free travel, saying a crisis of immigration sparked by the Arab spring was calling into question the borderless regime enjoyed by more than 400 million people in 25 countries.

Challenging one of the biggest achievements of European integration of recent decades, Nicolas Sarkozy and Silvio Berlusconi also launched a joint effort to stem immigration and demanded European deportation pacts with the countries of revolutionary north Africa to send new arrivals packing.

The passport-free travel system known as the Schengen regime was agreed by a handful of countries in 1985 and put into practice in 1995. Since then it has been embraced by 22 EU countries as well as Norway, Switzerland and Iceland, but spurned by Britain and Ireland. It is widely seen, along with the euro single currency, as Europe's signature unification project of recent decades.

But like the euro, fighting its biggest crisis over the past year, the Schengen regime is being tested amid mounting populism and the renationalisation of politics across the EU.

In other setbacks to borderless Europe, Germany, France and other countries have been blocking the admission of Bulgaria and Romania to Schengen in recent months, while the arrival of thousands of Middle Eastern migrants in Greece has fed exasperation with Athens's inability to control the EU's southern border.
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France and Italy in call to close EU borders in wake of Arab protests | World news | The Guardian
 
today:

Greece's economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou's government is considering abandoning the euro and reintroducing its own currency.

Alarmed by Athens' intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. The meeting is taking place at Château de Senningen, a site used by the Luxembourg government for official meetings. In addition to Greece's possible exit from the currency union, a speedy restructuring of the country's debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union -- regardless which variant is ultimately decided upon for dealing with Greece's massive troubles.
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Athens Mulls Plans for New Currency: Greece Considers Exit from Euro Zone - SPIEGEL ONLINE - News - International
 
today:

Credit rating agency Standard & Poor's has lowered Greece's bond grade further into junk status, citing risks that the country will have to negotiate an extension on its debt repayments.

S&P lowered Greece's bond long-term bond grade on Monday by two notches to B from BB-, with "negative implications" for future efforts to improve public finances. It cut the short-term rating to C from B.
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Greece suffers new downgrade amid debt fears - Yahoo! News
 
The Prof said:
...Greece suffers new downgrade amid debt fears - Yahoo! News
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The downgrade is appropriate and deserved. The Greek government has missed its deficit reduction targets by about 1% of GDP. As a result, its commitments lack credibility.

What had been pointed out when the Greek debt crisis first erupted was:

1. Greece had enormous long-term structural imbalances that warranted junk status well before the debt crisis erupted.
2. Typical austerity programs understate the amount of economic contraction involved. If so, Greece's fiscal consolidation would need to be more aggressive to meet its commitments on account of less revenue in-take than anticipated.
3. The rescue package provided Greece with liquidity. That added liquidity was aimed at buying time for Greece to enact necessary structural reforms. Whether those reforms would be enacted and implemented would determine whether Greece overcame its fiscal woes.

Recently, the Greek government has been increasingly critical of those pointing out its continuing failures. The criticism is well-founded and deserved in the context of Greece's failing to deliver, to date, on its commitments. Rather than taking on its critics, the Greek government needs to adopt the measures necessary to deliver on its commitments. Otherwise, its commitments will continue to lack credibility and its fiscal woes will likely persist.
 
PeteEU said:
I see.. and yours is all roses and peachy right?
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Pete... we (on the right) realize the troubles we face, and have a structure and history to escape the idiocy if we could only put the Libs in the minority for a good long time. Obama just might do it for us for a while... that's a start.

The EU (this doesn't include the Brits) has no such structure, and the populous is pretty much fork-in-brain dumb... despite their arrogance.

.
 
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Aside from a more severe than expected economic contraction in Greece (typically contractions are worse than projected during fiscal consolidation), Greece also faces social problems that could undermine its ability to overcome its long-term solvency challenges. From The Washington Post:

Already struggling to avoid a debt default that could seal Greece’s fate as a financial pariah, this Mediterranean nation is also scrambling to contain another threat — a breakdown in the rule of law.

Thousands have joined an “I Won’t Pay” movement, refusing to cover highway tolls, bus fares, even fees at public hospitals. To block a landfill project, an entire town south of Athens has risen up against the government, burning earth-moving equipment and destroying part of a main access road.
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In Greece, austerity kindles deep discontent - The Washington Post

In societies where fissures exist, be they social or ethnic, economic crises, painful austerity measures, shocks, etc., can all lead to complex political challenges. Those challenges can sometimes cause governments to retreat from the challenges facing them. In a worst case, governments can fall.

With respect to Greece, the EU-IMF package provided liquidity to buy time for Greece to begin to address its solvency challenges. The sharper economic contraction has contributed to Greece's falling behind the package's targets. Such a development could lead to even more severe austerity measures being required. At the same time, the rising social unrest could present a substantial barrier to Greece's near-term prospects for addressing its enormous fiscal challenges.

As Greece has a democratic political system, new leaders could be elected who would reverse course. Parliamentary elections fall in 2013. Hence, if Greece is not emerging from its current recession, its fiscal situation remains gloomy, and if unrest has grown more widespread, 2013 could mark one potential turning point for Greece. Of course, one cannot rule out an earlier restructuring of debt, but that does not appear to be Greece's present intent. Things could change after the 2013 election.
 
today:

The central Spanish region of Castilla-La Mancha is “totally bankrupt”, according to the incoming administration of the rightwing Popular party (PP), an accusation that will deepen concerns about Spain’s budget deficit.

The claim has prompted angry denials from the Socialist government.

Spain’s 17 autonomous regions and its more than 8,000 municipalities, with €150bn ($220bn) of accumulated debt between them, have become the latest worry for investors in Spain and its sovereign bonds.

Although the amount is less than a quarter of total public sector debt, regional debt has doubled since 2008. The 17 regions collectively exceeded official budget deficit limits in 2010, and appear likely to do so again this year despite repeated demands for compliance from the central government.

Catalonia, an economy the size of Portugal, says its deficit will be double the target.

Vicente Tirado, a senior PP politician in Castilla-La Mancha, said the region was “totally bankrupt”; owed suppliers such as pharmaceutical companies that provide drugs for hospitals a total of €2bn in unpaid bills; and would have trouble finding the money to pay the region’s 76,000 civil servants next month.

Mr Marín [the pp's economy coordinator in the region] said the PP, which won the region from the Socialists in elections two weeks ago, would shut between half and three-quarters of Castilla-La Mancha’s 95 government owned companies because they duplicated the work of other organisations and were staffed mostly by Socialist party members.

At the national level, Socialist leaders have accused the PP of undermining Spain’s credibility in financial markets for domestic political ends and have noted that several PP-run fiefdoms have also exceeded their deficit limits.

Official data show, however, that Socialist-run Castilla-La Mancha was the worst-performing region last year, recording a deficit of 6.5 per cent of gross domestic product, compared with the limit for that year of 2.4 per cent.

Two opinion polls published on Sunday, meanwhile, predicted that the PP, led by Mariano Rajoy, would win national elections with a 13.8 percentage point advantage over the Socialists, under their leader in waiting Alfredo Pérez Rubalcaba.
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FT.com / Bankrupt Claims Heighten Spanish Debt Fears
 
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