DODGING ANOTHER BULLET

BUMPED from yesterday.

PORTUGAL ADMITS IT NEEDS A BAILOUT ...  "because of austerity measures."
Daily Mail (UK) April 6
It is believed they need up to £70billion.   (Or more. "Analysts expect Portugal will need up to €80bn (£69.6bn) - compared with €85bn for Ireland and €110bn for Greece.")
-- The austerity measures never took effect because  Parliament refused to enact them which led to the Prime Minister's resignation on March 23.  Germany has been pressing Portugal to take the bailout.  The reason is simple: most of Portugal's debt is owed to German and French banks.   "German and French banks have lent nearly $1 trillion to the most troubled European countries and are more exposed to the debt crisis than the banks of any other countries." Source: New York Times  (Jun 13, 2010)


"As Germans bemoan bailouts, their banks bless them" Boston Globe (Mar 30)

German banks had euro208.3 billion ($298 billion US) in total credit exposure to Ireland alone at the end of the third quarter of last year, according to the Bank for International Settlements, and a total of euro326.4 billion ($471 billion US) to Greece, Ireland, and Portugal together, while the French had euro215.7 billion($308.7 billion US).

And that doesn't count German bank's bad loans to governments and firms in southern and Eastern Europe.

"Other European nations have been urging Portugal for months to accept outside help in a bid to contain the continent's debt crisis from spreading, amid market fears that the eurozone itself could break apart if it didn't." Source: Forbes (April 6)

Spain, however, may be too big to fail. And too expensive to bail out. The Prime Minister has announced he will not run again, his Socialist party is trailing in the polls and may be replaced, and unemployment is 20 percent, the highest unemployment rate in Europe. Moody's has cut the credit ratings of 30 Spanish banks and upcoming stress tests could be disastrous. Stress tests in Ireland last month showed they needed an additional €24 billion ($A33 billion), and at the end of March Spain’s third-largest savings bank, Banco Base, requested 2.8 billion euros in state aid earlier this week, twice what the Spanish government thought it would request. Spain is the fourth largest economy in the currency zone.

UPDATED April 7 - Look at it as a house of cards. The EU is desperately trying to avoid the collapse of the Euro - something that could happen if Portugal defaulted. Der Spiegel (April 7) notes that, a Portugese "default would threaten the existence of the whole euro zone, as banks in several European countries, including Spain and Germany, are heavily exposed to Portuguese debt." How exposed is Spain? Typically Spanish reports the amount Portugal owes to Spanish banks is about 75 billion €, in loans, bonds and other financial assets. Spain has more than a third of the debt which Portugal has with international banks.

WHAT DO THE COUNTRIES PAY FOR BAILOUT LOANS? Greece pays an average of 3.5 percent for the first three years of its plan and 4.5 percent thereafter. Ireland, which is also trying to get lower terms, currently pays an average of 5.8 percent. Source: Bloomberg Business Week (April 7)