Sovereign debt watch

[Car'a'carn]

The Economist has an article about Ireland as well. Does not paint as bleak picture though.

There is speculation that, if bond yields rise further, Ireland and Portugal might soon be forced to borrow from the European Financial Stability Facility (EFSF), the €440 billion fund established in June for struggling euro-zone countries. That is unlikely. Ireland has already raised enough money to finance this year’s borrowing requirement (it will spread the cost of bank bail-outs over several years) and has a big cash buffer besides. Portugal, too, is not anything like as desperate for cash as Greece was in the spring. But if Ireland were eventually forced to borrow from the EFSF, the fund might find it hard to impose conditions harsher than the ones it has volunteered for already. You cannot ask a non-smoker to give up cigarettes.

Normally, this would pass as bad news - but in today's bizarro world, that will be good for another 1-2% gain on the S&P. However, if campbell's story is even semi-accurate expect the bond market to hammer away at Ireland some more and dare the EU to pull the cord on the EFSF.

[campbell]

I've been keeping up on the euro zone activities lately.

Given that I work for a French company, where the main "hub" activity occurs in Cologne, Paris, and Zurich.... yeah, I gotta keep on top of it.

[campbell]

http://www.nytimes.com/2010/11/16/bu...euro.html?_r=1

European officials, increasingly concerned that the Continent’s debt crisis will spread, are warning that any new rescue plans may need to cover Portugal as well as Ireland to contain the problem they tried to resolve six months ago.
....
While some important details are different, the current situation feels eerily similar to what happened months ago in Greece, where the cost of borrowing rose precipitously.

European authorities stepped in with a rescue package, expecting an economic recovery and the creation of new European rescue funds to fend off future panics by bond investors whose money is needed by countries to refinance their debt.

But with economic conditions weakening, markets are once again in turmoil. Rescuing Ireland may no longer be enough.

[campbell]

http://www.nytimes.com/2010/11/22/bu...z9BTTMvgXc3apw

DUBLIN — Ireland relented on Sunday and formally applied for a rescue package worth tens of billions of dollars, after months of trying to survive its financial crisis with austerity measures and strict budgetary planning.

European Union officials, who had been pushing Ireland to accept help, quickly agreed to the request, committing a staggering amount of funds to an ailing member for the second time in six months.

The total amount of the package was not announced, but several officials said it would be 80 billion to 90 billion euros, or $109 billion to $123 billion. Last spring, Europe disbursed 110 billion euros to Greece to save it from bankruptcy.

The loans to Ireland were necessary in large part because of the faltering state of the nation’s banking system, underscoring the extent to which ailing banks remain a threat to recovery two years after the financial crisis rippled through economies and forced banks around the world to accept bailouts.

Ireland’s aid will come from a rescue mechanism worth roughly $1 trillion that was set up in May by the European Union and the International Monetary Fund to help euro zone countries spiraling toward default.
....
o far, there have been few strikes in Ireland. People have been conditioned to believe that the deficit must be cut and that Ireland, as a small open economy, has little choice but to pay its debts and take the tough policy choices.

But there is likely to be a limit to this patience as new spending cuts hit social services that by and large have remained protected. Irish unemployment is around 12 percent, and services like universal child benefits remain generous by European standards.

“There will be a lot of pain for the taxpayer, and a lot of people will lose their jobs,” said Michael Noonan, the chief economic spokesman for Fine Gael, the main opposition party.

“But the option was to be insolvent,” he added, “and if that is the option, it’s either the devil or the deep blue sea, so you might as well negotiate with the devil.”

[campbell]

http://www.bloomberg.com/news/2010-1...ro-credit.html

Borrowing costs for Europe’s most indebted nations are at record highs as Ireland’s capitulation in accepting a bailout of its banking industry stokes concern that other countries also will have to seek aid.

The average yield for 10-year debt from Greece, Ireland, Portugal, Spain and Italy reached 7.57 percent today, a euro- era record. The average premium investors demand to hold those securities instead of German bunds widened to as much as 492 basis points, the highest level of 2010. The average cost of insuring against default by the five nations using credit- default swaps reached a record 517 basis points on Nov. 23.

“It’s no longer taboo to speak about a restructuring,” said Johannes Jooste, a portfolio strategist at Bank of America Corp.’s Merrill Lynch Global Wealth Management in London, which oversees about $1.4 trillion for clients. “The fact that bond yields continue to rise and put pressure on countries that have to fund from the market makes investors less and less confident, and it’s bringing forward the day of reckoning.”

[campbell]

ooops, one country was slipping under the radar.... it's not all about the PIIGS:

http://www.cnbc.com/id/40379099

Belgium faces an important test Monday, when it aims to sell between 1.5 billion euros ($1.9 billion) and 2.5 billion euros worth of bonds in an auction that will indicate the level of investor confidence in the nation plagued by political turmoil and high levels of debt.

The auction of 2014, 2020 and 2035-dated bonds comes as bond vigilantes are increasingly targeting the country of 11 million people amid concerns over its high level of debt and political instability.
....
In its latest report on Belgium, rating agency Standard & Poor’s wrote that its AA+ rating on the country’s long-term debt – the second-highest rating at the agency – could come under downward pressure if a continued political stalemate were to diminish the authorities' capacity to address the “outstanding challenges”.

With no federal government in place to draw up a new budget, S&P fears the country will not be able to reduce its deficit through a series of austerity measures and bring down its debt.
....
“Contrary to some comments, the fact that we don’t have a government is not bad for our public finances…there may be no austerity, but there will also be no spending,” Ledent added.

okay, then.

[limabeanactuary]

Irish deal
http://m.dailyherald.com/dailyherald...l=true#display

pension funds + sovereign debt. Oh I don't see how this could be a disaster

However, in a surprise accounting move, European and IMF experts decided that Ireland first must run down its own cash stockpile and deploy its previously off-limits pension reserves in the bailout. Until now Irish and EU law had made it illegal for Ireland to use its pension fund to cover current expenditures. This move means Ireland will contribute E 17.5 billion to its own salvation.
....

Chopra said Ireland's decision to use its pension reserve fund had helped win the confidence of those who offered help. He declined to say if negotiators had demanded Dublin use its reserves under terms of the deal.

[DixieFlyer]

as I've said before, there is not enough economic surplus to both 1) make the incompetent banking cartel whole, and 2) keep pension promises ....so guess what: the middle class and pensioners get thrown under the bus

http://globaleconomicanalysis.blogsp...-maligned.html

Said ECB president Trichet in an exclusive interview...

"This is a victory for much maligned bondholders everywhere. I am pleased to announce we have effectively removed the word investing from the vocabulary of bondholders."

"Starting today, bondholders need not be concerned with who they lend money to, why, or what risks there are in doing so."

"Not only will this help ease turmoil in the markets, but bondholders can now think in terms of winning rather than the more mundane investing because the ECB and IMF will backstop all losses from trading bonds."

The above is a translation from today's issue of Le Monde. An official transcript will appear on the ECB's website later today.

In a followup interview Trichet commented, "The debt crisis is over. We are willing to grant Greece and Ireland as much time as they need. If an extra-four-and-a-half years to repay emergency loans proves insufficient, we are willing to wait an extra-hundred-and-a-half years".

When asked if he meant 150 years or 100.5 years, Trichet replied, "I mean as long as it takes to make the ECB whole, forever if necessary. The important thing is for bondholders to never suffer losses. Heaven forbid we should ever unsettle bondholders by insinuating they may have to take some losses. Bondholders in general, not just Goldman Sachs bondholders, do God's work."

[limabeanactuary]

The demographics are just not going to make it work.

The bondholders will eventually get their haircut, whether it's explicit or implicit [inflation...in which case, everybody is hit]