Nothing new to long time readers as we've pointed out repeatedly that the newest, and biggest bubble of them all is the government debt bubble. [Feb 5, 2010: Sovereign Risk Chart - Where Would the US Fit in, on Europe's Scale?] In a world fixated only on benefits, and could care less of the costs as long as they are borne by taxpayers, very few seem to care these days. It is now the ethos that whatever the problem, a central bank or government will throw a country's populace under the bus to solve it.
Some countries will stomp on their people, though backdoor defaults via money printing (Japan, US, UK) - but those within the European Union are stuck as their central bank is not set up to print Euros to fix things. [Dec 13, 2009: Bond Vigilantes Prowling Europe] If not for this minor detail, these countries could just go to the American way and print, stimulate, and print some more to make all their problems go away. Which makes one wonder if this European Union is going to last through the cascade of multiple bailouts that surely look to be on the way the next half decade.
Portugal will be next on the radar [Mar 9, 2010: Portugal Tries to Front Run Bond Vigilantes] [Feb 3, 2010: Portugal Debt Costs Rise to 11 Month High] - while not in as bad a situation as Greece, we'll see if the bond vigilantes wait for the fiscal outlook to reach Greece's stage, or if they will strike sooner than anticipated. According to this Bloomberg article, there might not be as much time as I originally though the markets would allow. Which leads one to wonder how much time Spain has... [Dec 10, 2009: Global News - Ireland takes Responsible Budget Steps, Spain the Next to Worry About]
If only Ben Bernanke could make all these European countries bank holding companies... ah well. All the US taxpayer can do for now is send the IMF more monies and then do backdoor bailouts that way with the IMF as the middle man. Our pockets are endless and money trees plentiful.
- Portugal risks becoming the new Greece. 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.
- “We do not ignore that Greece’s particular situation has contagion risks, and we are feeling it,” Finance Minister Fernando Teixeira dos Santos told reporters in Lisbon on April 22. “The performance of spreads in the market reveals that contagion risk.”
- Portuguese spreads, the extra yield that investors demand to hold its debt rather than German equivalents, jumped to 227 basis points today, the most since at least 1997.
- Portuguese Prime Minister Jose Socrates' push to convince investors his country will avoid Greece’s fate is being hobbled by an economy that’s expanded less than an annual average of 1 percent for a decade and is reliant on tourism and industries such as cork and pulp.
- 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. (ah, I was wondering why the author said Portugal had higher debt than Greece) The country’s 236 percent debt burden last year compares with 205 percent in Italy and 195 percent in Greece.
- The lack of savings at home lies behind the Portuguese government’s dependence on foreign investors to fund the deficit, and the vulnerability of its bonds to shifts in sentiment. The savings rate is the fourth-lowest among 27 members of the Organization of Economic Cooperation and Development.
- About 15 to 17 percent of outstanding public debt is held by Portuguese investors, the debt agency estimates. In Spain about 54 percent of bonds and bills are held domestically; in Japan 94%.
- “The reason we’re concerned about Portugal is not because its public sector debt ratios are excessively high, it’s more that the Portuguese economy doesn’t really grow,” said Kenneth Wattret, chief euro region economist at BNP Paribas SA in London.
- EU policy makers’ difficulty in containing the Greek crisis is stoking the threat of contagion, just as the near-collapse of Bear Stearns Cos. in 2008 undermined other U.S. banks, exacerbating the credit crisis. The risk for Portugal is that investors who are trying to protect their portfolios from a Greek-like rout will dump holdings of small euro countries, such as Portugal. Once that happens, surging bond yields could put Portugal in the same spiral that Greece is trying to escape
- Portugal plans to raise as much as 25 billion euros this year, equivalent to 15 percent of GDP. That compares with 21 billion euros last year, according to the national debt agency. “As spreads get higher the problems are getting bigger: it’s a self-fulfilling prophecy,” Penninga said in a telephone interview. “It will get more difficult now for Portugal to tap markets.”
- The IMF raised the prospect of contagion on April 21, saying “if unchecked, market concerns about sovereign liquidity and solvency in Greece could turn into a full-blown sovereign debt crisis, leading to some contagion.”