Thread: Buffett: Euro's End Not 'Unthinkable,' No Nation Deserves Fr

Buffett: Euro's End Not 'Unthinkable,' No Nation Deserves Free Ride

Thursday, 24 Mar 2011 11:35 AM
By Forrest Jones

It's not unthinkable that the euro could collapse, says legendary investor Warren Buffett. "I know some people think it's unthinkable ... I don't think it's unthinkable," Buffett tells CNBC.

Nevertheless, European authorities will carry out "huge efforts" to preserve the currency.

In the meantime, Buffett adds, struggling European countries like Portugal will have to work their way out of their crises and stop relying on other European countries for help.

"You can't have three or four or five countries that are in effect free-riding on the other countries. That won't work over time — they have to get their fiscal houses in reasonable harmony," Buffett says.

For now, European currency woes won't seriously affect Buffett's investment empire, Berkshire Hathaway, as Buffett points out that currency woes are nothing new.

"It isn't the end of the world, but a lot of adjustment would be needed if the euro proved to be in real trouble."

Portugal, meanwhile, is struggling more than ever to avoid financial collapse in wake of the government's recent resignation, a move global markets interpreted to mean the debt-ridden country will lose its yearlong battle to avoid asking for an international bailout, the Associated Press reports.

Portugal has fought hard to avoid asking its EU partners and the International Monetary Fund for help. Doing so would mean accepting lending terms calling for tight fiscal conditions that limit the country's ability to set its own economic policies and ultimately decide its own fate.

However, global financial institution Barclays Capital says that market pressure on Lisbon to seek a bailout won't let up, adding that "an EU-IMF program looks increasingly likely given (the) adverse market funding conditions" for Portugal, the Associated Press reports.

"In the near term, we suspect bond yields will keep pushing higher, if only because uncertainty will prevail," according to Barclays Capital.

Portugal isn't alone, as neighboring Spain is also trying to right its economic ship. Moody's credit ratings agency has downgraded the debt of 30 Spanish banks, the Associate Press reports.

While the ratings for the three largest banks remain untouched, the other ratings revisions signify that trouble may be brewing in the Iberian Peninsula.

The Spanish government, however, remains optimistic.

"We have to keep doing what we have been doing so far — continue to enact reforms, live up to our commitments, strengthen our economy," says Spanish Finance Minister Elena Salgado.

Spain has enacted a number of austerity measures to tackle its economic problems that arose after the housing collapse came amid a tough recession.

http://www.moneynews.com/Headline/warre ... /id/390615

Moody's Downgrades Ratings of 30 Spanish Banks

Thursday, 24 Mar 2011 07:37 AM

Moody's downgraded the debt of 30 Spanish banks Thursday but left untouched the ratings of the country's three largest banks, highlighting the weaknesses in Spain's financial system a day after the government in neighboring Portugal fell.

The ratings agency acted two weeks after downgrading Spanish government debt one notch to Aa2. Then, it cited worries over the cost of the banking sector's restructuring, the government's ability to reach its borrowing reduction targets and the country's grim economic growth prospects.

Moody's said its reasons for downgrading banks' senior debt Thursday included higher pressure on Spanish sovereign debt and many weak banks, a declining role within the banking system for smaller and regional banks as the sector consolidates, and what it called a weakening future support environment for banks across Europe.

The fall of Portugal's government on Wednesday pushed that debt-laden country closer to needing a bailout like Greece and Ireland got last year, and almost inevitably shined a spotlight on the much bigger Spain, a bailout of which would be devastating for the 17-nation euro zone.

Moody's Investors Service confirmed the ratings of big banks Santander and BBVA and savings bank La Caixa, although with a negative outlook.

But it downgraded the deposit and/or senior debt ratings of 30 Spanish banks by one or more notches. It said this includes downgrades of 15 banks by two notches and five banks by three or four notches.

Spanish stocks opened about 1 percent lower Thursday after the collapse of the government in neighboring Portugal but later recovered and was virtually unchanged from Wednesday's close.

The yield on Spanish 10-year government bonds was also virtually unchanged early Thursday at 5.18 percent.

Spanish Finance Minister Elena Salgado, asked about how the events in Portugal would affect her country, said: "We have to keep doing what we have been doing so far — continue to enact reforms, live up to our commitments, strengthen our economy."

She was referring to austerity measures that Spain has taken to chip away at its bloated deficit and other measures designed to stimulate an economy that is struggling to overcome nearly two years of recession triggered by the collapse of a real estate bubble.

Salgado declined to comment on Thursday's bank rating downgrade by Moody's.

http://www.moneynews.com/FinanceNews/EU ... /id/390563

Portugal, Ireland Woes Cast Shadow Over EU Summit

Thursday, 24 Mar 2011 10:38 AM

Portugal's political crisis and uncertainty over the true scale of problems at Irish banks dominated a summit of European Union leaders that was designed to finally put an end to the region's crippling debt crisis.

The summit was going to be the day for EU leaders to give their final approval to the overhaul of their crisis strategy, including closer economic cooperation and the size and power of the region's bailout funds. Instead, the event was overwhelmed by discussion of the futures of Portugal and Ireland.

The defeat of Portugal's minority government over planned austerity measures puts one of Europe's must financially troubled countries into political limbo just as it faces huge debt repayment deadlines.

Pedro Passos Coelho, the leader of Portugal's main opposition party and the most likely candidate to become its next prime minister, said it was "impossible" to tell whether the country could avoid an international bailout, like the ones taken by Greece and Ireland.

He said he didn't have complete information about Portugal's finances, but emphasized that the country needed "a stronger government, more committed to reducing the public deficit and controlling debt levels."

Passos Coelho's center-right Social Democratic Party and other opposition parties Wednesday night refused to endorse Prime Minister Jose Socrates' spending cuts and tax increases, triggering his resignation.

Passos Coelho was meeting other conservative EU politicians at a pre-summit meeting just outside Brussels, while Socrates will represent his country at the actual summit later Thursday and Friday. However, Passos Coelho said that Socrates would not have a mandate to negotiate a bailout on behalf of his country.

Most analysts believe that an international rescue for Portugal is only a matter of time, but Swedish Prime Minister Fredrik Reinfeldt stressed that the EU had all the necessary tools in place to aid the country should it need help.

Other EU leaders said they regretted Socrates' defeat over austerity measures.

"Portugal had presented a very courageous reform program for the years '11, '12 and '13," said German Chancellor Angela Merkel. "I think it will depend very much on everyone who speaks for Portugal feeling committed to the goals of that program. That is not only important for Portugal but also for the entire eurozone."

Jean-Claude Juncker, the prime minister of Luxembourg, said EU leaders would hold talks with both Passos Coelho and Socrates to get a clear idea of the situation in Portugal.

The political crisis in Portugal comes at a bad time for the EU, not only because of the debt repayments the cash-strapped country faces in the coming months, but also because it takes the shine off the region's new crisis strategy, which was due to be signed off at the summit.

Many analysts fear that the trouble in Portugal could heighten market concern again about other vulnerable countries in the 17-nation eurozone, most notably Spain, though the country's markets were well-supported on Thursday.

At the same time, a new government in Ireland is also creating jitters, threatening to make senior bondholders take losses if stress tests due out next week reveal big capital holes in the country's banks. Irish Prime Minister Enda Kenny said he would not try to reach any new deals on his country's painful bailout with other eurozone leaders until he knows the result of the stress tests.

"From the Irish point of view I prefer to deal with substance rather than theory," he told reporters.

The stress tests will give a clearer picture of the state of the banks and the ability of the Irish government to continue shouldering their losses — as it has been since the beginning of the crisis. But they will also show other eurozone governments, whose banks were prolific lenders to their Irish counterparts, how much they are involved in the problem.

If the Irish force losses on private bank bondholders that could cause huge trouble for banks in Germany, the U.K. and France.

Gay Mitchell, a European Parliament member from Ireland's ruling Fine Gael party, said the idea of making bondholders share part of the blame was not a threat but a cry for help.

"We have a problem with recapitalization of our banks. We're not threatening anybody, we're saying please help us out on this. ... Ireland is not capable on its own of doing this," Mitchell told the Associates Press. "We do need support from EU institutions on bank recapitalizations."

The EU and the European Central Bank have so far ruled out letting big banks fail outright, fearing that it would cause panic on financial markets similar to what happened after the collapse of Lehman Brothers in 2008.

http://www.moneynews.com/Economy/EU-Eur ... /id/390602

Portugal Said to Need as Much as $99 Billion in Bailout

Thursday, 24 Mar 2011 02:03 PM

A bailout for Portugal may total as much as 70 billion euros ($99 billion), two European officials with direct knowledge of the matter said as a credit-rating cut threatened to deepen Portugal’s debt woes.

Preliminary calculations put the cost of a lifeline between 50 billion euros and 70 billion euros, said the officials who declined to be named because the issue is confidential. Portugal continued to rule out a rescue, a day after the parliament’s rejection of budget cuts led Prime Minister Jose Socrates to offer to quit.

A downgrade by Fitch Ratings dealt a further blow today, as European Union leaders called on Socrates and the opposition parties to unite behind belt-tightening measures that might spare Portugal from becoming the third euro country to tap emergency aid.

Portugal has proposed “a very ambitious, a very demanding reform program for the years 2011, 2012 and 2013,â€

Irish Economy Shrinks Most in a Year on Investment, Exports

Thursday, 24 Mar 2011 08:14 AM

Ireland’s economy shrank the most in a year in the fourth quarter of 2010 as consumer spending, investment and exports declined.

Gross domestic product fell 1.6 percent from the previous three months, when it increased 0.6 percent, the Central Statistics Office said in Dublin today. Consumer spending declined 0.4 percent on the quarter, exports fell 1.4 percent and investment dropped 2.3 percent. In 2010, the economy shrank 1 percent, a third straight annual contraction.

Ireland’s Fine Gael-led government, which came to power after an election last month, wants to revive the economy after a slump that sent the budget deficit soaring, brought the banking system close to collapse and forced the country to seek a bailout. EU leaders meet in Brussels today to sign off on measures aimed at drawing a line under Europe’s debt crisis, as pressure mounts after Portugal’s fiscal plan was defeated in parliament and Prime Minister Jose Socrates offered to resign.

“Plans for a grand bargain at the EU leaders’ summit, starting today, have been scuppered before the meeting has even begun,â€

I support the EU breaking up peacefully and each European nation going back to being able to have self-determination and each protecting their unique nationalities, cultures and languages without being oppressed by anyone else.