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Largely overlooked amidst the handwringing over Spain this week was a piece written by Portuguese prime minister Pedro Passos Coelho in the FT that all but admits publicly what many officials have been saying privately for some time: Portugal is probably going to need a second bailout.
In fairness, Passos Coelho doesn’t actually come out and say that, but it sure sounds like he’s preparing the groundwork:
We are utterly committed to fulfilling our obligations. But while we are optimistic, we must also be realistic and pragmatic. This is why we accept that we may need to rely on the commitment of our international partners to extend further support if circumstances beyond our control obstruct our return to market financing.
Although Portugal’s current €78bn bailout runs through 2014, a decision on whether a second bailout is needed must be made much more quickly than that – probably sometime in the next two or three months. A look at why after the jump… Read more
Most of the focus on Friday’s meeting of eurozone finance ministers in Copenhagen was on how much leaders would increase the size of their €500bn rescue system. But according to a leaked document we got our hands on, the eurozone firewall wasn’t the only topic being debated.
The four-page report says the “Budgetary situation in Italy” was item #3 on the eurogroup’s agenda. As we wrote for Tuesday’s print edition, the report warns that any slippage in growth or a rise in borrowing rates could force the technocratic government of Mario Monti to start cutting again – something he has vowed not to do.
As is our practice, Brussels Blog thought it was worthwhile giving some more details and excerpts from the report beyond what fits in the newspaper. Read more
Following our story Saturday and subsequent blog post on two confidential economic analyses prepared for European finance ministers in Copenhagen which paint a less-than-confident picture of the eurozone crisis, we here at Brussels Blog have received multiple requests for more on their contents. Read more
Coming up with a number for the size of the new, enlarged eurozone rescue fund seems to be the favourite parlour game in the run-up to today’s meeting of eurozone finance ministers in Copenhagen.
According to a leaked copy of the draft conclusions obtained by the FT, the ceiling for the next year will be €700bn. But is that, to quote a former US president, fuzzy math? Is it really €940bn…but some leaders are afraid to admit it out of fear of angering their bailout-fatigued national parliaments?
The leaked draft has three elements of a new firewall starting in mid-2012 : €200bn is committed to the ongoing bailouts in Greece, Ireland and Portugal; €240bn of left-over money in the current, temporary rescue fund is frozen in an emergency account; and two-fifths of the new €500bn permanent rescue fund gets capitalised.
The fuzzy math comes in when you try to account for the new permanent rescue fund, called the European Stability Mechanism. An attempt to clarify, plus some excerpts from the draft, after the jump… Read more
Yesterday, the European Commission slapped down a request by Ireland to defer a €3.1bn payment related to its banking debt.
“I actually wonder why this has to be asked at all,” said the EU’s top economic official, Olli Rehn. “The principle in the European Union and the long European legal and historical tradition is, in Latin, pacta sunt servanda – respect your commitments and obligations.”
So what commitment is Ireland trying to avoid, and why? Jamie Smyth, the FT’s Dublin correspondent, answers our questions.
This morning, the dead tree edition of the FT has a story based on some leaked documents we got our hands on regarding the massive Greek debt restructuring that needs to begin in a matter of days.
The documents make clear the schedule is slipping dangerously; the meeting of eurozone finance ministers tonight that has been cancelled was supposed to approve the launch of the restructuring so the process can begin Friday. The whole thing needs to be done before a €14.5bn Greek bond comes due for repayment March 20. Time is running out.
But perhaps more interestingly is the fact that eurozone finance ministries asked for financial advice from New York financial advisors Lazard and legal advice from the New York firm of Cleary Gottlieb Steen & Hamilton about what the consequences would be if they launched the debt restructuring – but were forced to scrap it after it had started.
As is our tradition, we thought we’d give Brussels Blog readers a bit more on what the documents had to say. Read more
As the week comes to an end, we seem no closer to a deal to sort out Greece’s troubles than we were when it started. With rumours of a deal a daily (hourly?) occurrence, and questions over whether eurozone finance ministers will meet Monday to sign off on a new €130bn bail-out, Brussels Blog thought we’d revive our popular “viewer’s guide to the Greek crisis” to lay out the state of play for those not following the negotiations on an hourly basis.
The best way to think of what is currently happening in Greece is to look at it as the proverbial row of dominoes that must fall before a deal is complete. Unless they all fall in order, Athens is at risk of missing payment on a €14.5bn bond due March 20, which could lead to a messy default and renewed chaos across the eurozone.
The first domino has basically been complete since last weekend: a deal with private holders of Greek bonds to wipe off €100bn from Athens’ €350bn debt load.
As we reported on Monday, a consortium of private Greek debt holders has agreed to accept new bonds that are be worth half the face value of their current bonds (including a one-time cash payment). The new bonds would have low interest rates that would reduce their value even more. According to our sources, the “haircut” in the long-term value will be just over 70 per cent.
But there are two more dominoes that must still fall: Greece must (yet again) agree to new austerity measures being urged by the “troika” of international lenders –European Commission, European Central Bank and International Monetary Fund – and then Brussels must decide on how to fund any shortfall. Read more
As financial markets watch with nervous anticipation the outcome of the tense negotiations over Greece’s debt restructuring, there is clear evidence that bond investors believe Portugal could be next, despite repeated insistence by European leaders that Greece is “an exceptional and unique case” – a stance reiterated at Monday’s summit.
Portugal’s benchmark 10-year bonds were over 17.3 per cent this week, though things have eased off a bit today. Those are levels seen only by Greece and are a sign the markets don’t believe Lisbon will be able to return to the private markets when its bailout ends next year. Default, the thinking goes, then becomes inevitable.
But are Greece and Portugal really comparable? Portugal certainly shares more problems with Greece (slow growth, uncompetitive economy) than with Ireland and Spain (housing bubbles, bank collapses). But unlike Greece, where talk of an inevitable default was the topic of whispered gossip in Brussels’ corridors from almost the moment of its first €110bn bailout, there is no such buzz about Portugal.
More concretely, the latest report by the European Commission on the €78bn Portuguese bail-out, published just a couple weeks ago, paints a much different picture for Lisbon than for Athens. An in-depth look at the largely overlooked report after the jump… Read more
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