Thread: EU Debt Contamination Deepens In Greece, Portugal, Ireland

EU Debt Contamination Deepens In Greece, Portugal And Ireland - Gold Just 2% From Record Nominal High

Submitted by Tyler Durden
05/30/2011 08:00 -0400
21 comments

From Gold Core

Gold and silver are flat in US dollars but higher in euros this morning. Trade is thin with the UK and US markets closed for spring holidays. Gold and silver were 1.75% and 8% higher last week and the precious metals and especially gold appear to be on solid footing due to the continuing debt crisis in Europe and concerns about a slowdown in the US and global economy.


Cross Currency Rates

Despite gold being only some 2% away from the record nominal highs seen at the end of April ($1,563.70/oz), sentiment remains lackluster at best with little or no coverage of gold in the international financial press and media over the weekend.


Gold Bullion in US Dollars – 60 Days (Daily)

Speculative sentiment remains highly muted with the investment public not participating in the gold market. Indeed, the majority of the public’s only experience of the gold market is when they have imprudently sold their gold jewellery to the thousands of new cash for gold merchants seen globally.

There are a tiny minority of more risk averse individuals and people who understand the importance of gold as a form of financial protection who continue to allocate funds to gold.

In the last two weeks we have experienced a lot of sell orders and the ratio of sell to buy orders has been the highest since our foundation in 2003. Value buyers emerged last week but much of the buying was by existing clients adding to their holdings.

The threat of sovereign default and contagion increases by the day.

Greece is facing the threat of further severe austerity measures and a plan for unprecedented outside intervention including in the collection of tax and wholesale privatization of Greek state assets. The severity of the plan and the fact that it would in effect spell the end of Greek sovereignty and a forced move towards a European fiscal union may lead to its rejection by opposition Greek parties who may seek a fairer alternative.


Portugal Government 10 Year Note – 2 Years (Daily)

Greece is just one of the sovereign debt crisis facing the Eurozone. Portugal and Ireland are bracing for debt crisis contagion to reach their shores and in both countries the crisis is deepening.

Portuguese bonds have come under heavy selling pressure again this morning with 10 year bonds rising to 9.822% and two-year note yields were 21 basis points higher at 11.53% this morning. The spread or yield difference between German 10-year bunds and Portuguese securities of a similar maturity widened to a record over 678 basis points in London this morning. This is the highest since Bloomberg began collecting the data in 1997.


Ireland Government Bond – 10 Year (Daily)

In Ireland, Transport Minister Leo Varadkar sparked alarm and confusion over the weekend when he said the government may need further funding from the European Union and IMF next year as Ireland will be shut out of bond markets for 2012 and possibly even in 2013.

Irish 10 year bond yields surged over 11% last week and remain over 11% at 11.07% this morning.

Punitive “bail outsâ€

Europe Goes From Worse To Horrible: Ireland Broker Than Expected, Greece Mulls Splitting Up Into "Good" And "Bad" Greece

Submitted by Tyler Durden
05/29/2011 11:41 -0400
223 comments

Greece hasn't even filed for bankruptcy yet and the "unexpected" consequences are already coming. In comments to The Sunday Times newspaper, Irish Transport Minister Leo Varadkar said the country will likely need another "unexpected" loan from the troica, after he became the first cabinet member to cast doubt in public on Ireland's ability to raise cash. In other words once on the temporary bailout wagon, always on the temporary bailout gain. Reuters reports: "I think it's very unlikely we'll be able to go back next year. I think it might take a bit longer ... 2013 might be possible but who knows?" Varadkar was quoted as saying. "It would mean a second program (of loans from the EU/IMF)," he said. "Either an extension of the existing program or a second program. I think that would generally be most people's view." We wonder how German taxpayers will fell now that they realize they have not one, not two, but three (and soon 5 or more) heroin addicts they need to clean, wash, scrub, and feed on a monthly basis (with their, and US money, but Americans continue to not care that the biggest source of capital for the IMF is them). And speaking of ground zero, Greece is now scrambling after the Independent said that even Sarkozy is now prepared to let the Greek chips falls where they may. Following earlier news that the troika believes that the privatization plan it itself set up is not ambitious enough, Greece which now realizes that Germany, the EU, IMF, and Franch all are prepared to let it go, the country is now coming up with last ditch ideas faster than a speeding bullet: according to Reuters: "A Greek paper reported on Sunday that the government was considering setting up a Spanish-style "bad bank" to clean up its lenders' accounts from "toxic" Greek bonds and make them more attractive to potential buyers." Of course since it is toxic Greek sovereign bonds we are talking about, this implies that the country will somehow be split into a "good" and "bad" version of itself. And who thought financial innovation only comes out of the US.

From Reuters:

A 'bad bank', formed to hold risky assets owned by a state guaranteed bank, could be set up to absorb the risky Greek bonds held by state-controlled lenders slated for privatization, such as the Savings Post Bank, To Vima said.

"With problematic, Spanish savings banks (cajas) as a model, the finance ministry is examining proposals to implement the idea in the country," it said, without citing any sources.

Spain's Bankia, created from the merger of seven cajas, said last month it would create such a unit in a bid to attract investors ahead of a stock market listing.

Probability of success: 0.0%

As for Ireland being broker than expected:

Deputy Prime Minister Eamon Gilmore told broadcaster RTE that fears of a domino effect from Greece's problems were overblown. The possibility of a Greek default has sent bond yields rocketing for indebted Ireland, Portugal and Spain.

"It's not a situation that if Greece defaults then there are immediately implications for Ireland," Gilmore said.

"If Greece defaults there are implications for the wider euro zone and obviously we are part of that."

Ireland, meanwhile, wants to tap investors for funding in 2012 before its 85 billion euros EU-IMF bailout runs out the following year.

But investors believe Ireland will be unable to return to the market and instead will have to tap the European Union's permanent rescue fund in 2013, which might require some restructuring of privately held sovereign debt.

Reflecting this medium-term risk, Ireland's two-year and five-year paper are yielding close to 12 percent, more than its 10-year bonds on the secondary market.

Some 50 billion euros of the existing EU-IMF bailout has been earmarked for sovereign funding requirements with the remainder set aside to prop up the country's ailing banks.

Earlier this month, the IMF said whatever was left over after recapitalizing the banks could be channeled to the sovereign if there was a delay in returning to markets.

At the end of March, the Irish government said the banks needed 24 billion euros to bulletproof their balance sheets but Dublin hopes some five billion euros can be raised from imposing losses on junior bondholders and asset sales, meaning that 19 billion euros of the 35 billion would be tapped.

Gilmor's best defense: "It is wrong to put Ireland in the same basket as Greece."And coming soon to a theater next to, the story of the deputy PM who cried not bankrupt wolf.

The US may be on vacation, but the EUR, at a third of its regular volume and with substantially more volatility, sure won't be come 5 pm EDT.

http://www.zerohedge.com/article/europe ... -bad-greec

Spiegel Greek Hit Piece #2: Bailout Troika Finds "Greece Missed All Fiscal Targets" - Next Steps: Game Over?

Submitted by Tyler Durden
05/28/2011 14:04 -0400
165 comments

Germany's Der Spiegel seems hell bent on getting sued to hell and back by Greece. After a few weeks ago it "broke" the news of a secret meeting that would consider the expulsion of the country from the Eurozone, it is once again stirring passions with an article claiming that Greece has missed all fiscal targets agreed under its bailout plan, according to a mission from an international inspection team, putting further funding for Athens at risk, Reuters summarizes. "The troika (aka the International Monetary Fund, the European Commission and the European Central Bank) asserts in its report to be presented next week that Greece had missed all its agreed fiscal targets," weekly Spiegel magazine reported in a prerelease. In other words, this could be the political game over for Greece, whose fate as has been disclosed recently, is intimately tied with the perception that it is following the troika's demands for fiscal change. If the three key bailout institutions are already leaking that Greece is done, next week could well be the beginning of the end for the €. In about 48 hours, even as America is enjoying a Monday off (or precisely because to that, to avoid a market panic), the European market could be digesting a very bitter pill of testing just how well pre-provisioned all those German, French and Dutch banks really are.

From Reuters:

The mission will be holding meetings next week before an expected finalisation of the report.

"The deficit in the public budget was higher than expected," the magazine said, referring to the report's findings.

"The reason is that the Greek government still spends more than agreed in the aid programme. On top of that tax income is still lower than demanded."

The IMF has already said it cannot release its part of a 12 billion euro aid tranche to Greece next month if fiscal conditions underpinning the bailout are not met and the European Commission's top economic official was quoted as saying the EU was setting the same conditions.

"We Europeans have the same conditions as the IMF," EU Economic Affairs Commissioner Olli Rehn was quoted as saying in the same prerelease for Monday's Spiegel magazine.

"We will decide on the next tranche after the troika's report. The situation is very serious," Rehn added.

There is, however, one possible last ditch rescue: a firesale, pardon privatization, of Greek assets.

EU officials have asked Athens to step up privatisations urgently and suggested setting up a trustee institution to help oversee the process, similar to the body that privatised East German companies after the fall of communism. Spiegel magazine also said the troika's experts estimated Greece had assets worth 300 billion euros, which it could sell off to meet its targets.

That said, good luck selling the idea that Greece has to sell the Cyclades only to provide another year or so of banker bail outs, now that virtually everyone knows who the only benefactors from the can kicking exercise are.

And not even an hour has passed since the article that Greece has already had to issue a formal lie:

Greek Finance Minister George Papaconstantinou on Saturday denied a German magazine report that an international inspection team had concluded Greece had missed all its fiscal targets.

"Reports such as the one in Spiegel have no relation to reality. Negotiations continue and will be completed in the next few days. We have every reason to believe the report will be positive for the country," he told Greek Mega TV.

Wrong again. And confirming that it is basically game over should the troika wash its hands, is the latest note from Goldman's Dirk Schumacher:

Eurogroup head Juncker said yesterday that the IMF would probably not be able to make the next disbursement disbursement, as the re-financing of Greece over the next 12 months is not secured (the €26.7 billion Greece was supposed to get from private investors in 2012). By August 20 the Greek government has to redeem €7 billion in debt falling due, though there are of course other payments the Greek government has to make, implying that Euro-zone governments need to come up with a solution fast.

There are two issues Euro-zone governments have to deal with. First, whether (and how) to bridge the funding hole that will open up over the next couple of months if the IMF does not disburse its tranche. Second, what to do about 2012, ie, should there be a second package and under what conditions?

There are in principle several options available for how to replace the IMF money for the next tranche if governments were to deem the risk for the financial system of any early debt restructuring too big – the ECB has been vocal over the last couple of weeks with respect to these risks. Stepping up the current bilateral loans would be one option, though politically difficult as this would need to be approved by parliaments, at least in some cases. Also, several countries will find it rather unattractive to fund these loans right now in the market. Tapping either the EFSF or the EFSM to replace the missing IMF money would be easier, as – with the exception of Finland – parliaments would not need to be asked. One open question, however, is whether an end of IMF money flows, even temporarily, means that access to EFSF money also needs to be declined, as the EFSF should only provide money together with the IMF.

Whichever option is chosen, this will create some noise in several countries and the official explanation for why the IMF is no longer funding will be crucial in that respect. If it is indeed only the question of guaranteed funding over the next twelve months, Euro-zone governments may argue that the IMF will return once an agreement has been found over the second package. However, if the troika’s assessment states that debt sustainability is not given and/or the slippage in terms of implementing the reforms has been too big, it will be difficult even to come up with bridge financing for the next months.

With respect to the second package, a necessary, though not sufficient, condition, seems to be that the troika will still conclude that Greece can “make itâ€

Following Milan Election Loss, Failed Berlusconi "Referendum" Sets Stage For Early Italy Elections

Submitted by Tyler Durden
05/30/2011 12:51 -0400
32 comments

Following electoral upheavals in Portugal, Germany and Finland, it is time to add Italy to the list, after Silvio Berlusconi's center-right coalition appears to have lost the critical election in Italy's financial capital, Milan, which also happens to be the center of the Bunga Bunga man's business and media empire. And while the mayoral election is merely symbolic for now, its outcome has substantial consequences for Italian governance (and thus stability): "With most votes already counted, leftist Giuliano Pisapia was set to capture Milan city hall with some 55 percent of the vote against around 46 percent for outgoing center-right mayor Letizia Moratti. The local elections were seen as a referendum on the billionaire prime minister. "This is the first defeat for Berlusconi's center-right coalition since they came back to power, and it sends a clear signal of voters' disillusionment," said Maurizio Pessato of pollsters SWG. "These results make early elections more likely, possibly next year, and I don't see any chance of meaningful economic reforms being implemented by a lame duck government." As is by now known, while Spain has recently reentered the bond vigilante's scope after its bonds have continued to traded near record highs, Italy has so far been spared. That will change soon: "Italy is the only euro zone economy in which, taking account of inflation, citizens are poorer on average than they were 10 years ago. Berlusconi's government last month cut its growth forecast for this year to 1.1 percent from 1.3 percent and cut next year's outlook to 1.3 percent from 2.0 percent. S&P's lowered its credit outlook on Italy this month due to its weak growth and failure to adopt reforms, although worries of an immediate impact on the markets eased after the Treasury sold long-term bonds near the top of its target range Monday." Will this be the catalyst that is seen as "change" to the status quo by enough bond holders that Italy becomes that last peripheral European domino to fall?

Reuters has more on the latest political regime change:

With the southern port of Naples also set to fall to the opposition Italy of Values party, the result raised the prospect of national elections before the scheduled date of 2013.

"This is a very heavy defeat and the big loser is the premier," said Leonardo Boriani, editor of the Northern League party newspaper La Padania, which has sniped repeatedly at Berlusconi's PDL party in recent weeks.

With the government preparing to bring forward plans to slash the budget deficit by 40 billion euros ($57 billion) after ratings agency Standard and Poor's cut its outlook for Italy's A+ rating to "negative" from "stable," the stakes are high.

Italy has one of the most sluggish economies in Europe, more than a quarter of its young people are unemployed and government policy is constrained by the need to contain a debt mountain equivalent to some 120 percent of gross domestic product.

In a move seen widely as a signal that he believed defeat in Milan was likely, Berlusconi chose to travel to Romania on Monday but senior ministers have ruled out any change of course before national elections due in 2013.

"It's all the communists' fault"

After being punished for initially calling the vote a referendum on his popularity and policies, Berlusconi blanketed the airwaves with trademark tirades against his longtime enemies: the left and "communist" magistrates.

His last minute television blitz, to which opposition parties were not given the chance to reply, prompted complaints that he was abusing his domination of the media, and magistrates in Rome opened a formal investigation.

Economy Undersecretary Daniela Melchiorre, a former judge, resigned in protest after Berlusconi delivered a rant against Italian magistrates to a surprised U.S. President Barack Obama at the Group of Eight summit in Deauville, France, last week.

Unfortunately for Silvio, unlike Saudi emirs, the country does not have a surplus of crude which it can use to buy the love of its people. As for what happens to the PM once he loses his political immunity, in the aftermath of the DSK sexual backlash scandal, we can only imagine how said "communist magistrates" will respond to the dirt that will come to the fore as every woman he may have had a dalliance with decides to finally present their case in a more objective judicial setting.

http://www.zerohedge.com/article/follow ... -elections