Greece has endured a Depression-level collapse over the past few years, with employment and real national income both about 25 per cent below their pre-crisis peaks. As if that weren’t bad enough, capital controls, introduced in response to the Eurosystem’s refusal to act as a lender of last resort to Greek banks that had passed the ECB’s stress tests, have led to reports of shortages at grocery stores and gas stations.
Yet none of this was visible when we visited the country over the past few weeks, even in the large cities. The point isn’t that Greece is doing just fine — far from it. Rather, it’s an illustration of the dangers of relying on anecdotes and personal experience when evaluating an economy of many millions of people. Read more
Banco Espirito Santo has recently, and spectacularly, shown how many sins of the past lie beneath Portuguese corporate life.
Also recently, readers of the Independent (and Matt Levine) would have come across what must be one of the most pointlessly complicated derivatives transactions ever — and also involving a Portuguese company. Read more
Click for the Bank of Portugal’s announcement of the resolution of Banco Espirito Santo: Read more
Relisted in Lisbon, Banco Espirito Santo, down 45 per cent at pixel…
Banco Espirito Santo, the Portugese lender which had a few problems earlier this week to do with its complicated corporate structure and then saw its shares temporarily suspended on Thursday, has become this week’s goat on which all scapes may be laid.
Perhaps it is the summer quiet, but a sample of our inbox detects some caprine hitching. Read more
A tick up in sovereign bond yields has followed Friday’s late announcement by the Portuguese Constitutional Court that some budget austerity measures are a no-no, for violating principles of equality and proportionality.
Benchmark 10-year yields rose 7 basis points to 3.72 percent, according to Reuters, with weakness also seen in other euro zone peripheral government bonds.
The FT notes the need for tax rises and, while the country has exited the official bailout programme, there are still risks to a further package of rescue loans. Read more
Those rascal short sellers are at it again, daring to ask awkward questions of the European project. This time the manifesto comes from New York based Tortus, who have a plan to “rehabilitate” Portugal. (H/T @Pawelmorski and @IyerC).
Before rehabilitation, however, there must come acceptance, and Tortus is short “certain Portugese sovereign bonds” because it does not think the status quo is sustainable. Read more
Just to put an already-huge year-end move in Portuguese bond yields into some wider context…
Here’s a chart (via Reuters) of the five-year yield since August 2010 — to which levels it’s now, roughly, returned. Click to enlarge.
A useful chart from Citi on Thursday morning (which you may click to enlarge), on the recent rise in bank holdings of sovereign debt. Read more
And could it be a job for the special one?
A republic since 1910, Portugal elects its President every five years and the next election is not until 2016. But EconoMonitor floats an interesting idea, while considering the possibility of a monarch for the former kingdom. Read more
Here’s Portugal’s 10 year benchmark punching through 8 per cent to start your morning. We’d note it was sitting at 6.4 per cent on the 1st of this month…
To lose one cabinet minister is bad luck, to lose two in two days… means… time for another eurozone peripheral crisis? The resignation of Portugal’s foreign minister Paulo Portas yesterday has everyone worried, because of his role as leader of the CDS-PP, the junior partner in the governing coalition. If CDS-PP withdrew their support, the government would be left with 108 seats in a 230-seat parliament and uncertain prospects for scraping together a majority.
And all this less than two weeks before a troika delegation is due to start their next review of the economy as the lenders consider whether Portugal will get an easing of terms on its 2011 €78bn bailout, and receive the next €2bn instalment. Read more
Nothing like taking the long view – such as this snapshot of Spanish, Portuguese and Italian 10 year paper, over 150 years. Click to enlarge
Bond yields in the eurozone are hitting new lows not seen since 2010…
Angela Merkel visited Portugal on Monday to give a message of “tough love”, as the FT put it:
The German chancellor praised Lisbon for the “courageous way” it had implemented deficit-reduction measures, saying there was “at the moment no reason to renegotiate” the adjustment programme… Read more
The IMF reckons Portugal’s economy will shrink 1 per cent next year. That compares with an estimated contraction of 3.7 per cent this year and a 1.7 per cent fall last year. Meanwhile, the OECD has just declared recession in Portugal to be ‘losing intensity.’ Read more
That’s Portugal’s 5-year CDS back below 500bps for the first time since March 2011 (we threw in Spain and Italy too as they have tightened a fair bit
and we had load of chart space). Click to enlarge, data via Markit:
“Was today the day that the Portuguese PSI began?,” Macro Man asks, of the OMT.
They’re noting something curious about ECB seniority in light of Thursday’s revelations about the OMT. The ‘technical features’ confirm that the OMT will receive equal treatment with ordinary bondholders if a eurozone sovereign restructures its debt. But, in the Q&A, Draghi also confirmed that the old SMP bond holdings will remain senior. It will be first in the queue, ahead of bondholders and the OMT. Read more
Draghi-day is just around the corner and JPM’s Malcom Barr is of the opinion that the ECB might just kick off its move by purchasing short-dated Portuguese sovereign debt.
Heck, why not? The arguments to intervene are simple enough. Read more
Chalk this one up to the ‘second bailout, no PSI‘ trade, maybe — Portuguese government bonds have been a top performer so far this year.
So, as for that second bailout… Read more
We take our headline from Sharon Bowles MEP.
The Member of the European Parliament was talking to Public Service Europe about this ominous move in transparent sovereign accounting: Read more
This delightful misstep was pointed out by Ralph Atkins over at FT Money Supply. Apparently in the rush to distance Belgium from any suspicion of Emergency Liquidity Assistance, Luc Coene, Belgium’s central bank governor may have turned snitch on Portugal.
As Ralph notes, we know ELA, which is essentially a bank bailout by national authorities when things get really, really bad, has been heavily used in Greece and Ireland. Read more
Here’s a nice, Portugal-themed chart from Gabriel Sterne of Exotix.
It’s all about stock-flow adjustments, or SFAs — the curious cases when a government’s stock of debt increases without a corresponding change in its deficit to explain it.
Attached to its most recent release on EU debt and deficit numbers, Eurostat has penned quite an interesting note on how these SFAs work (while pointing out that SFAs “have legitimate accounting explanations”). Hat-tip the WSJ’s Charles Forelle. Read more
Something you will never ever read in an IMF report on Greece…
Subordination of private bondholders by the official sector is already very acute. This means that the more a PSI exercise is delayed, the higher the haircut on the notional needs to be for a given level of debt relief. Consequently, the sooner a PSI exercise happens, the better…
Not Greece 2011, but Portugal 2012. Read more
This is, as the FT reports, quite a curious decision by the European Central Bank’s Governing Council (which met this week):
(Click image for full doc. It amends the ECB’s breakthrough decision in December which expanded its collateral eligibility rules to include “additional credit claims”.) Read more
Just a curio, given that all other sovereign eurozone debt was tightening on Wednesday. Here’s Portugal’s 5 year paper (the ECB has bought, subordinated — what have you — in the market on Wednesday, Reuters said):
Citi analysts have attempted to explain the Portugal enigma, which they note now has the country’s 10-year bonds trading at some 1,000 basis points above Bunds.
The reason, Jurgen Michels and team say, is simply that the country is not on a sustainable fiscal path: Read more