Tag Archives: José Sócrates

The Risky Are Rallying

Well, why not? The EU leaders are not going to solve anything this time either. That means the central banks have to keep on buying government bonds to keep the prize stable and prevent a total collapse. Seems like a pretty safe bet to me…so far…

“If the EU does opt to muddle – let’s “wait and see” – through then it will no doubt fall on the ECB to provide support.”

Gavan Nolan

Not even the collapse of a euro zone government could prevent risky assets rallying today, with stocks reaching their highest levels for two weeks. As expected, Portugal’s minority Socialist government lost the vote on its latest austerity package, prompting the prime minister Jose Socrates to resign. The incumbent government will continue in a caretaker capacity until the president calls a general election, which will probably be held within the next two months. This complicates matters even more for the EU and Portugal, according to Markit Financial Information.

The latter country’s yields were up around 7.75% (Markit Evaluated Bonds) earlier today, a level that is clearly unsustainable over the medium-term.

Pressure was already mounting on Portugal to accept a bailout, and this will only increase over the coming days and weeks. But the power vacuum makes a rescue problematic.

“If the country is to receive loans from the EFSF it will need to agree to another round of austerity measures. The caretaker government doesn’t have the mandate to do this. Portugal might have to wait until the new government is elected in May,” credit analyst Gavn Nolan writes in the Intraday Alert from Markit.

But it faces a large bond redemption in April:

“Investors will be looking at a country that is politically unstable with low growth prospects; high yields will be required to stimulate demand for the debt. If the EU does opt to muddle – let’s “wait and see” – through then it will no doubt fall on the ECB to provide support.”

There were rumours today that the central banks was active in buying bonds. Hovever, some traders said there was no substance to this.

“The sanguine view taken by the markets – the sovereign’s CDS spreads ended the day flat – implies that a bailout is all but inevitable. A rumour that a rescue was impending helped spreads recover from earlier widening. The markets will be looking for at least a message from the EU summit that the EFSF is available to Portugal,” Nolan underlines.

Investors have become prepared for disappointment from the summit.

“This isn’t an unfamiliar feeling for the markets where EU gatherings are concerned. It is not even certain that the debt crisis will be the main topic of discussion; Libya and the fate of nuclear power could occupy much of their time.”

Two of the main concerns of financial markets – the funding of the EFSF and Ireland’s bailout terms – are highly unlikely to be resolved at this summit.

The first issue is expected to be addressed once domestic political hurdles are overcome in Finland and Germany.

“But the latter issue will probably be more challenging. Ireland’s intransigence on its corporate tax rate is clearly bothering some of the other members, but the elephant in the room is the recapitalisation costs of the Irish banking sector,” Gavan Nolan points out.

Adding: “If a figure in excess of EUR35 billion is revealed in the stress tests results at the end of this month, then the country’s solvency will come under intense scrutiny. Burden sharing by senior bank bondholders – anathema to the EU’s powerbrokers – will be back on the agenda.”

The great and the good at the EU will take some comfort from the absence of contagion in the sovereign credit markets.

Spain’s spreads would have been widening sharply a few months ago if Portugal was under similar pressure as it is today.

“But the larger Iberian country is no longer seen as a credible candidate for a bailout by most market participants, evident in the difference between the two sovereigns’ spreads, now at a record high,” Nolan concludes.

  • Markit iTraxx Europe S15 101bp (-3), Markit iTraxx Crossover S15 381bp (-5.5)
  • Markit iTraxx SovX Western Europe S5 171bp (-3.5)
  • Markit iTraxx Senior Financials S15 145bp (-3.5), Markit iTraxx Subordinated Financials S15 258bp (-6)
  • Sovereigns – Greece 965bp (0), Spain 222bp (+3), Portugal 530bp (+1), Italy 158bp (-2), Ireland 605bp (-3)
  • Saudi Arabia 126bp (-1), Bahrain 332bp (-7)
  • Japan 101bp (-1)
  • Tokyo Electric Power Co – 275bp (+10)


Filed under International Econnomic Politics, National Economic Politics

First Day of EU Summit Ends in Violence

Trade union protests outside an EU summit in Brussels against the austerity being imposed across the continent by the bloc turned violent on Thursday, as riot police battled rock-wielding demonstrators with water cannon and pepper spray. Giant banners demanding: “Competitiveness Pact: No – Austerity Pact: No – Solidarity Pact: Yes” were draped by campaigners covering the centre of the roundabout at the top of the European quarter.

“This happens while bankers and CEOs are continuing to receive huge and scandalous bonuses and pay and very little has been done to remove what really causes the crisis.”

European Trade Union Congress

The violence kicked off after a few dozen red-dressed members of the Belgian socialist trade union, the General Federation of Belgian Workers (FGTB) attempted to break through police barricades and threw objects at the police. According to police, 12 officers were injured in the clashes, which shut down traffic on much of the ring road surrounding the centre of the city. By mid-afternoon, the demonstrations had begun to wind down.

Four separate marches across the European capital comprising some 20,000 workers, according to organisers, converged on the meeting of European premiers and presidents.

Police put the figure closer to 12,000.

The unions are protesting the imposition of the deepest level of economic integration in the EU‘s history – the delivery of “economic governance” in the union that will require wage restraint, hikes in retirement ages, public sector cutbacks and limits on government spending, amongst other stringent measures.

“This happens while bankers and CEOs are continuing to receive huge and scandalous bonuses and pay and very little has been done to remove what really causes the crisis,” ETUC said in a statement.

“The European trade union movement stands clearly against these policies and states that this is not only unfair because the burden is carried only by the ones who are not responsible for the crisis, but also wrong from an economic and strategic point of view.”

Similar actions were due to take place in Spain and Germany, according to trade unions, with a further major more nationally focussed anti-austerity march to hit London on Saturday.

The demonstrations are part of a series of rolling actions across Europe.

On 16 March in Bucharest some 50,000 workers hit the streets, according to the European Trades Union Congress and on 9 April in Budapest, Hungary’s six trade unions are to descend upon a meeting of EU finance ministers. according to the EUobserver.com.

Despite the violence, the protests in Brussels were actually scaled back from what the FGTB had originally threatened. Earlier this month, the union central had said it wanted to shut down air traffic control, the Eurostar train and all highways leading into the capital, but other unions felt such action went too far.

The anger highlights concerns expressed yesterday by one EU diplomat who told reporters that the cuts need to be imposed “as quickly as possible, very quickly when it comes to the most unpopular measures” in order to not get bogged down by such opposition.

EU Council President Herman Van Rompuy denied that economic governance targeted working people: “To the people demonstrating outside, I say: ‘We take your worries seriously, but what we do is not about dismantling social protection. It is about making sure that our economies are competitive enough to create jobs and sustain the standard of living for all our citizens.”

The protest came after a group of demonstrators invaded an event in the European Parliament on Wednesday evening where the Greek culture minister was speaking.

Unveiling a banner denouncing the European Union and the International Monetary Fund during a celebration in Brussels of the 2500th anniversary of the Battle of Marathon, when Athenians managed to resist an attack by the Persian Empire, the protestors described the EU and IMF as an “occupation force” akin to the “barbarians” that fought the Greeks two and half millennia ago.

While organisers were not pleased with the interruption, the protesters received applause from many of those in the largely Greek audience in the packed EU parliament chamber.


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Filed under International Econnomic Politics, Laws and Regulations, National Economic Politics, Philosophy