Now that the Greek bail-out is being hailed as the tremendous success it is (sarcasm intentional), Spain is reportedly seeking a similar, but far bigger, rescue package of its own.
Sentiment towards Spain was hit by press reports, later denied by the European Commission, that the European Union (EU), International Monetary Fund (IMF) and U.S. Department of Treasury were drawing up a liquidity plan for Spain, including a credit line of up to €250 billion, about twice the amount made available to Greece.
Yields on Spain's sovereign debt are rising, but are still far below levels which would indicate immediate and irreversible distress. Spanish 10-year bond yields rose 12 basis points to 4.85% yesterday, the highest since July 2008, taking the spread over German Bunds to 2.21% – the highest since the introduction of the Euro in January 1999.
Spain faces a significant refinancing hurdle next month when €16 billion of bonds will need to be re-financed. While memories of the Greek crisis are at the forefront of investor minds, Madrid is nowhere near the crisis situation experienced by Athens. Spain's 10-year bond yield is still below 5%, which is less than Greece is paying on its IMF facility. Greece didn't seek emergency funding until its two-year bond yield reached 10%. By comparison, Spanish two-year bonds currently yield a very comfortable 3.3%.
Madrid's banking system, however, is a completely different story. Spanish banks borrowed €85.6 billion from the European Central Bank (ECB) last month. This was double the amount lent to them before the collapse of Lehman Brothers in September 2008 and one sixth of net Euro-Zone loans offered by the central bank.
This is the highest amount since the launch of the Euro-Zone in 1999 and a disproportionately large share of the emergency funds provided by the Euro’s monetary authority, according to an analysis by Royal Bank of Scotland (RBS). Spanish banks account for 11% of the Euro-Zone banking system.
The rise in borrowing from €74.6 billion in April, which makes up nearly 15% of the net liquidity pumped by the ECB into the Euro-Zone financial system, provides further evidence of the acute distress in the Spanish financial sector.
RBS estimates the total amount of Spanish liabilities held by overseas investors is €1.5 trillion, or 142% of the country’s Gross Domestic Product (GDP). By comparison, Madrid's budget deficit is fairly tame, at approximately 60% of GDP - a far cry from Greece, which is well in excess of 100%. Of the total debt held by external investors, more than half, or €770 billion, has been issued by Spanish banks.
While investors have not yet required high yields on Spain's sovereign debt, the concern is that the situation in Madrid will continue to deteriorate. With austerity measures in place which will undoubtedly weigh on the Spanish economy, 4th largest in the Euro-Zone, investors have every reason to doubt that the situation will turn around anytime shortly.
Every European country that gets in financial trouble causes every other country to suffer. So goes Greece, so goes Spain, so goes Portugal, so goes Ireland and on and on. Even France and Germany can only absorb so much. With such low yields on its sovereign debt, it's no wonder that investors are beginning to refrain from Spain.
Marko's Take
Showing posts with label Greece. Show all posts
Showing posts with label Greece. Show all posts
Thursday, June 17, 2010
Tuesday, June 15, 2010
Euro-Zone Sovereign Debt Continues To Stumble
Moody's, that venerable credit rating agency, just acknowledged what the entire financial universe has known for months: Greece is not an investment grade credit! Really? Even Standard & Poors figured that out nearly two months ago.
In making the 4-step downgrade to Ba1 from A3, Moody’s cited risks to economic growth from the austerity measures tied to a €110 billion ($134.5 billion) aid package from the European Union (EU) and the International Monetary Fund (IMF). Obviously, the Moody's analysts must be regular readers of Marko's Take.
Greece has cut spending, raised taxes and trimmed public-sector wages and benefits to reduce the deficit, which ballooned to 13.6% of Gross Domestic Product (GDP) last year, more than four times the EU maximum. The government pledged to trim the shortfall to 8.1% of GDP this year and bring it back under the 3% EU limit by 2014.
Spain's problems, which are far less severe than those of Greece, is struggling to raise financing for debt maturities of €16.2 billion by July.
Spain disclosed yesterday that the European financial crisis is taking a toll on the country's banks, with foreign banks refusing to lend to some, while Germany said the EU stands ready to help if Madrid needs a Greek-style rescue.
With the 4th largest economy in the EU, Spain is coping with 20% unemployment and an 11.2% budget deficit. Spain has among the lowest sovereign debt ratios in the Euro-Zone, at less than 60% of GDP.
Despite growing investor concerns amid a tougher credit environment, Madrid was able to place €5.2 billion at its 12- and 18-month bill auctions, but investors demanded a big yield premium.
Spanish 10-year bond yields rose nearly a quarter of a point yesterday, to 4.67%, while financial sector shares also came under pressure, down nearly 1% as they underperformed the broader market.
The demands on Germany and France, the EU's most healthy countries, continued to exert political problems.
German chancellor Angela Merkel's center-right coalition government may be close to collapse, stung by a string of disagreements and intense infighting over austerity cuts, policy reform and the departure of senior conservatives. With elections coming up in the next few weeks, German voters appear inclined to make wholesale changes.
The bail-out package has also raised the ire of Merkel's French counterpart, Nicolas Sarkozy, who has accused the Germans of creating an atmosphere that will thwart growth in Europe at a time when it should be stimulated. Relations between the two politicians are at an all-time low.
Ireland was also able to sell €1.5 billion of new debt, but at much higher yields than in previous auctions. The average yield on the 2016 bond rose to 4.521% from 3.663% at the last comparable auction in April. The 2018 bond had a yield of 5.088%, up from 4.55% last August.
The credit window is still open for European sovereign debtors but could slam shut at any time. If, and when it does, the toll on the world financial system will be particulary acute as governments will be forced to make substantially greater cuts to bolster investor confidence. Marko's Take? Avoid these issuers and focus on the only winner in this entire financial crisis: Gold.
Marko's Take
Some sites we really like and hope that you visit: http://www.lemetropolecafe.com/, http://aegeancapital.com/,
http://marketviews.tv/, and, of course, our ever-so-informative and entertaining You Tube channel at http://www.youtube.com/markostaketv.
In making the 4-step downgrade to Ba1 from A3, Moody’s cited risks to economic growth from the austerity measures tied to a €110 billion ($134.5 billion) aid package from the European Union (EU) and the International Monetary Fund (IMF). Obviously, the Moody's analysts must be regular readers of Marko's Take.
Greece has cut spending, raised taxes and trimmed public-sector wages and benefits to reduce the deficit, which ballooned to 13.6% of Gross Domestic Product (GDP) last year, more than four times the EU maximum. The government pledged to trim the shortfall to 8.1% of GDP this year and bring it back under the 3% EU limit by 2014.
Spain's problems, which are far less severe than those of Greece, is struggling to raise financing for debt maturities of €16.2 billion by July.
Spain disclosed yesterday that the European financial crisis is taking a toll on the country's banks, with foreign banks refusing to lend to some, while Germany said the EU stands ready to help if Madrid needs a Greek-style rescue.
With the 4th largest economy in the EU, Spain is coping with 20% unemployment and an 11.2% budget deficit. Spain has among the lowest sovereign debt ratios in the Euro-Zone, at less than 60% of GDP.
Despite growing investor concerns amid a tougher credit environment, Madrid was able to place €5.2 billion at its 12- and 18-month bill auctions, but investors demanded a big yield premium.
Spanish 10-year bond yields rose nearly a quarter of a point yesterday, to 4.67%, while financial sector shares also came under pressure, down nearly 1% as they underperformed the broader market.
The demands on Germany and France, the EU's most healthy countries, continued to exert political problems.
German chancellor Angela Merkel's center-right coalition government may be close to collapse, stung by a string of disagreements and intense infighting over austerity cuts, policy reform and the departure of senior conservatives. With elections coming up in the next few weeks, German voters appear inclined to make wholesale changes.
The bail-out package has also raised the ire of Merkel's French counterpart, Nicolas Sarkozy, who has accused the Germans of creating an atmosphere that will thwart growth in Europe at a time when it should be stimulated. Relations between the two politicians are at an all-time low.
Ireland was also able to sell €1.5 billion of new debt, but at much higher yields than in previous auctions. The average yield on the 2016 bond rose to 4.521% from 3.663% at the last comparable auction in April. The 2018 bond had a yield of 5.088%, up from 4.55% last August.
The credit window is still open for European sovereign debtors but could slam shut at any time. If, and when it does, the toll on the world financial system will be particulary acute as governments will be forced to make substantially greater cuts to bolster investor confidence. Marko's Take? Avoid these issuers and focus on the only winner in this entire financial crisis: Gold.
Marko's Take
Some sites we really like and hope that you visit: http://www.lemetropolecafe.com/, http://aegeancapital.com/,
http://marketviews.tv/, and, of course, our ever-so-informative and entertaining You Tube channel at http://www.youtube.com/markostaketv.
Thursday, May 13, 2010
PIGS Go To Slaughter
Now that the Greek bailout has been undertaken, the marketplace is turning its attention to other nations believed to be under economic or financial stress. The term "PIGS" originally referred to the "fearful foursome" of Portugal, Ireland, Greece and Spain. Italy has appeared to be on the verge of joining this uneviable assemblage of financial wreckage - creating the revised "PIIGS".
As has been written here in recent weeks, the so-called austerity program enacted by Greece is a farce. It is hardly "austere" to force lazy government workers to actually work! It is hardly austere to reduce the absurdly generous early retirement packages which allow some civil servants to retire as young as 45. Where can I sign up for that deal?
The other PIGS are now enacting their own "austerity" measures in an attempt to be more pro-active before their nations hit the crisis fever that was triggered by the Greek financial meltdown.
José Sócrates, Portugal’s prime minister, is expected to announce tough new austerity measures today, including a “crisis tax” on companies and wages, to reduce the country’s massive budget deficit.
Portugal's new austerity package, which follows similar moves by Spain, Greece and Ireland, is being introduced under pressure from Lisbon’s European Union partners for sharp budget cuts in support of a €750 billion emergency plan to defend the Euro.
Angry trade union leaders immediately called for a “mobilisation” against what they called “harsh and unjust” measures, expected to include a 1 % increase in value added tax to 21% and increases of up to 1.5 % in income tax. Unions opposed to cuts? Shocking! (Sarcasm intentional)!
The increases are expected to include a 2.5 % increase in corporate tax to 27.5 %. Politicians and public sector managers will also see their salaries cut by 5 %.
The new measures are designed to reduce the budget deficit by an additional €2.1 billion, from 9.4 % of Gross Domestic Product (GDP) in 2009 to 7 % this year and 2.8 % in 2013. Portugal’s original deficit target for this year was 8.3 % of GDP.
José Luis Rodríguez Zapatero, Spain’s prime minister, angered his trade union allies but cheered financial markets on Wednesday when he announced a surprise 5 % cut in civil service pay to accelerate cuts to the country’s budget deficit.
In what he called one of the hardest speeches of his life, Mr Zapatero told parliament how Spain planned to reduce its deficit by an extra 0.5 % of GDP this year and another 1 % of GDP in 2011, a total of €15 billion.
The new measures should help bring the deficit down from 11.2 % of GDP in 2009 to just over 6 % of GDP in 2011.
Surprisingly, trade unionists were outraged at what they said were harsh measures. One regional leader of the small United Left political party called for “rebellion and a general strike”. Shocking! (Sarcasm intentional)!
Thus far, Ireland has surprised the market skeptics by pro-actively embarking on a draconian plan to tackle its debt, which includes large public sector pay cuts, and resolve the bad loan problems at its banks.
Pledging to cut public sector spending by 7.5 % of GDP this year alone has not spared Ireland market pain. Last week its bonds were trading at a spread of 3 % over German Bunds. The moves have prevented the country from being deemed a full-blown basket case.
Italy, has been on the cusp of becoming the 5th member of this elite group. However, a very well received bond sale indicates that Rome is not yet ready for inclusion. Italy just sold €3 billion of 2015 notes at an average yield of just 2.57 %, which was 2 basis points lower than existing comparable debt. This demonstrates a substantial level of market confidence.
The problems in the Euro-Zone only BEGIN with Greece. Bail-out or not, the key to success will be a return to economic growth for all the affected nations. Greek unemployment is now more than 12% and is expected to rise to 14% over the next year or so. Until the European Union economies start to show growth, the budget deficits will continue to widen and the threat of a massive round of sovereign debt defaults will be an ongoing issue.
Marko's Take
Please visit us on You Tube. You can access video blogs covering topics such as the Federal Reserve, Income Taxes, Social Security, Peak Oil and a mock "State Of The Union" address by clicking here http://www.youtube.com/markostaketv. Our most recent video is on the FRAUD and Ponzi Scheme known as Social Security. It can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
As has been written here in recent weeks, the so-called austerity program enacted by Greece is a farce. It is hardly "austere" to force lazy government workers to actually work! It is hardly austere to reduce the absurdly generous early retirement packages which allow some civil servants to retire as young as 45. Where can I sign up for that deal?
The other PIGS are now enacting their own "austerity" measures in an attempt to be more pro-active before their nations hit the crisis fever that was triggered by the Greek financial meltdown.
José Sócrates, Portugal’s prime minister, is expected to announce tough new austerity measures today, including a “crisis tax” on companies and wages, to reduce the country’s massive budget deficit.
Portugal's new austerity package, which follows similar moves by Spain, Greece and Ireland, is being introduced under pressure from Lisbon’s European Union partners for sharp budget cuts in support of a €750 billion emergency plan to defend the Euro.
Angry trade union leaders immediately called for a “mobilisation” against what they called “harsh and unjust” measures, expected to include a 1 % increase in value added tax to 21% and increases of up to 1.5 % in income tax. Unions opposed to cuts? Shocking! (Sarcasm intentional)!
The increases are expected to include a 2.5 % increase in corporate tax to 27.5 %. Politicians and public sector managers will also see their salaries cut by 5 %.
The new measures are designed to reduce the budget deficit by an additional €2.1 billion, from 9.4 % of Gross Domestic Product (GDP) in 2009 to 7 % this year and 2.8 % in 2013. Portugal’s original deficit target for this year was 8.3 % of GDP.
José Luis Rodríguez Zapatero, Spain’s prime minister, angered his trade union allies but cheered financial markets on Wednesday when he announced a surprise 5 % cut in civil service pay to accelerate cuts to the country’s budget deficit.
In what he called one of the hardest speeches of his life, Mr Zapatero told parliament how Spain planned to reduce its deficit by an extra 0.5 % of GDP this year and another 1 % of GDP in 2011, a total of €15 billion.
The new measures should help bring the deficit down from 11.2 % of GDP in 2009 to just over 6 % of GDP in 2011.
Surprisingly, trade unionists were outraged at what they said were harsh measures. One regional leader of the small United Left political party called for “rebellion and a general strike”. Shocking! (Sarcasm intentional)!
Thus far, Ireland has surprised the market skeptics by pro-actively embarking on a draconian plan to tackle its debt, which includes large public sector pay cuts, and resolve the bad loan problems at its banks.
Pledging to cut public sector spending by 7.5 % of GDP this year alone has not spared Ireland market pain. Last week its bonds were trading at a spread of 3 % over German Bunds. The moves have prevented the country from being deemed a full-blown basket case.
Italy, has been on the cusp of becoming the 5th member of this elite group. However, a very well received bond sale indicates that Rome is not yet ready for inclusion. Italy just sold €3 billion of 2015 notes at an average yield of just 2.57 %, which was 2 basis points lower than existing comparable debt. This demonstrates a substantial level of market confidence.
The problems in the Euro-Zone only BEGIN with Greece. Bail-out or not, the key to success will be a return to economic growth for all the affected nations. Greek unemployment is now more than 12% and is expected to rise to 14% over the next year or so. Until the European Union economies start to show growth, the budget deficits will continue to widen and the threat of a massive round of sovereign debt defaults will be an ongoing issue.
Marko's Take
Please visit us on You Tube. You can access video blogs covering topics such as the Federal Reserve, Income Taxes, Social Security, Peak Oil and a mock "State Of The Union" address by clicking here http://www.youtube.com/markostaketv. Our most recent video is on the FRAUD and Ponzi Scheme known as Social Security. It can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
Wednesday, May 12, 2010
Greek Bail-Out Destined To Fail
Now that the collosal bail-out of Greece has been enacted, it's time to take a step back to analyze both the prospect for success and examine the appropriate remedies.
As has been written in Marko's Take numerous times, the problem with Greece is its system. The problems in Athens were decades in the making and can NOT be fixed by throwing around a few measley hundred billion dollars.
Greece suffers from an entitled population that has been coddled by the promises of socialist governments - allowing the people to expect to be taken care of. The problem with that reasoning is that the more people who are recipients of the government dole, the less productive they become. The people who are pulling the cart are taxed into oblivion and eventually wonder why they should be made to support the corrupt and lazy.
Greece is known for its corruption. It has a very high proportion of it work force employed by the government. Many government employees have been given lavish early retirement packages.
The rather modest budget cuts will NOT fix the problem. The only impact of these cuts in the short run will be to remove stimulus from the economy and facilitate a further downward spiral. Greece has one of the largest deficits as a proportion of Gross Domestic Product (GDP) in the world. Unless the economy grows, this will only grow worse.
The formula applied to Greece is hardly novel. The identical remedies were tried with Argentina in 2001, which suffered the world's largest debt default in 2001. They failed. According to Cristina Fernandez, Argentina's President, the bail-out repeated "the same recipes they applied to us, which provoked what happened in 2001".
Argentina, as an IMF member, voted for the Greek bail-out, but “critically”, Ms Fernández said, adding that the enforced austerity will have “terrible consequences” on the economy.
In the 1990s, Argentina was a devotee of the pro-market Washington Consensus and pegged the Peso to the Dollar. But it racked up debt and its economy crashed. Argentina savagely devalued its currency and became a pariah on international financial markets.
Speaking at an event on Monday night to refinance debt for Argentina’s provinces, Ms Fernández defended the demand-driven economic model, which has delivered several years of high growth, championed by her husband, Néstor Kirchner, in his 2003-07 government and which she has continued since.
The long-term solution for Greece is a complete overhaul of its economy and changing the mind-set of the population. This will be no easier there than here in the United States, where out-of-control social programs like Social Security and Medicare threaten to bankrupt us. Socialism has NEVER worked and NEVER will.
Only a return to a market-driven model, after a period of austerity, can possibly return Athens to a positive trajectory. Let's hope that Greece gets the message, the rest of the Euro-Zone gets the message and American gets the message. If we don't, we will suffer the same fate as Greece.
Marko's Take
Please visit us on You Tube at http://www.youtube.com/markostaketv. Our lastest video, on that Ponzi Scheme also referred to as Social Security, can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI. Our 7-step solution to this mess will be uploaded shortly.
As has been written in Marko's Take numerous times, the problem with Greece is its system. The problems in Athens were decades in the making and can NOT be fixed by throwing around a few measley hundred billion dollars.
Greece suffers from an entitled population that has been coddled by the promises of socialist governments - allowing the people to expect to be taken care of. The problem with that reasoning is that the more people who are recipients of the government dole, the less productive they become. The people who are pulling the cart are taxed into oblivion and eventually wonder why they should be made to support the corrupt and lazy.
Greece is known for its corruption. It has a very high proportion of it work force employed by the government. Many government employees have been given lavish early retirement packages.
The rather modest budget cuts will NOT fix the problem. The only impact of these cuts in the short run will be to remove stimulus from the economy and facilitate a further downward spiral. Greece has one of the largest deficits as a proportion of Gross Domestic Product (GDP) in the world. Unless the economy grows, this will only grow worse.
The formula applied to Greece is hardly novel. The identical remedies were tried with Argentina in 2001, which suffered the world's largest debt default in 2001. They failed. According to Cristina Fernandez, Argentina's President, the bail-out repeated "the same recipes they applied to us, which provoked what happened in 2001".
Argentina, as an IMF member, voted for the Greek bail-out, but “critically”, Ms Fernández said, adding that the enforced austerity will have “terrible consequences” on the economy.
In the 1990s, Argentina was a devotee of the pro-market Washington Consensus and pegged the Peso to the Dollar. But it racked up debt and its economy crashed. Argentina savagely devalued its currency and became a pariah on international financial markets.
Speaking at an event on Monday night to refinance debt for Argentina’s provinces, Ms Fernández defended the demand-driven economic model, which has delivered several years of high growth, championed by her husband, Néstor Kirchner, in his 2003-07 government and which she has continued since.
The long-term solution for Greece is a complete overhaul of its economy and changing the mind-set of the population. This will be no easier there than here in the United States, where out-of-control social programs like Social Security and Medicare threaten to bankrupt us. Socialism has NEVER worked and NEVER will.
Only a return to a market-driven model, after a period of austerity, can possibly return Athens to a positive trajectory. Let's hope that Greece gets the message, the rest of the Euro-Zone gets the message and American gets the message. If we don't, we will suffer the same fate as Greece.
Marko's Take
Please visit us on You Tube at http://www.youtube.com/markostaketv. Our lastest video, on that Ponzi Scheme also referred to as Social Security, can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI. Our 7-step solution to this mess will be uploaded shortly.
Thursday, May 6, 2010
Euro-Zone Budget Deficits Go Parabolic
While the topic du jour, every jour, has been Greece and its whopping budget deficit, fiscal problems within the Euro-Zone hardly end there.
Athens' budget deficit, which ran at 13.6% of Gross Domestic Product (GDP) in 2009, is not the highest in the bloc. Ireland had the biggest fiscal deficit in the European Union last year – larger than both Greece and the UK - according to revised figures published recently by Eurostat, the European Commission’s official statistics office.
The deficit was revised up from 11.8% to 14.3% of GDP after Eurostat ruled that the Irish government’s €4 billion of aid to Anglo Irish Bank must be treated as part of current spending.
Ireland has raised approximately 60% of the €20 billion it needs this year to finance the deficit. Its repayment schedules are manageable with around €1 billion of redemptions due this year, €4 billion next year and €6 billion in both 2012 and 2013.
European Commission's spring forecasts put the UK budget deficit THIS year at 12% of GDP – the highest projected within the European Union and worse than Treasury estimates. The deficit, if realized, would put Britain at the highest deficit of the 27 EU nations.
The country's budget shortfall was the third largest in the EU last year, but will overtake both Greece and Ireland this year, according to the forecasts. Greece's measures to tackle its public finances problems are projected to reduce its deficit to 9.3% of GDP in the coming year.
The commission's forecasts are for a worse deficit than predicted by Alistair Darling at his March budget. In 2010-11, the commission puts the deficit at 11.5% of GDP, compared with Darling's forecast for an 11.1% budget gap.
Even Germany, easily the healthiest economy in Europe, is finding itself struggling. Germany's budget deficit will soar well above 4% of GDP in 2010, breaching European Union rules, Finance Minister Peer Steinbrueck was quoted as saying on Wednesday.
Under the EU's Stability and Growth Pact, Euro-Zone members are required to maintain public deficits below 3% of GDP and public debt at less than 60% of GDP.
This sharp increase in deficit spending stems mainly from the stimulus package enacted by Chancellor Angela Merkel. At €50 billion, it is the largest since 1945.
Unfortunately, budgets are far easier to expand than contract. Politicians have a vested interest in their own re-election and nothing works better than promising something today while postponing the cost for future years. Austerity measures are never embraced by the domestic populations - keeping even the honest politicians from imposing these fixes. The recent riots and violence in Greece is proof that an entitled populace is loathe to take responsibility.
Marko's Take
Our latest You Tube video entitled "Social In-Security: The Problem" is now posted. You can access it by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
Athens' budget deficit, which ran at 13.6% of Gross Domestic Product (GDP) in 2009, is not the highest in the bloc. Ireland had the biggest fiscal deficit in the European Union last year – larger than both Greece and the UK - according to revised figures published recently by Eurostat, the European Commission’s official statistics office.
The deficit was revised up from 11.8% to 14.3% of GDP after Eurostat ruled that the Irish government’s €4 billion of aid to Anglo Irish Bank must be treated as part of current spending.
Ireland has raised approximately 60% of the €20 billion it needs this year to finance the deficit. Its repayment schedules are manageable with around €1 billion of redemptions due this year, €4 billion next year and €6 billion in both 2012 and 2013.
European Commission's spring forecasts put the UK budget deficit THIS year at 12% of GDP – the highest projected within the European Union and worse than Treasury estimates. The deficit, if realized, would put Britain at the highest deficit of the 27 EU nations.
The country's budget shortfall was the third largest in the EU last year, but will overtake both Greece and Ireland this year, according to the forecasts. Greece's measures to tackle its public finances problems are projected to reduce its deficit to 9.3% of GDP in the coming year.
The commission's forecasts are for a worse deficit than predicted by Alistair Darling at his March budget. In 2010-11, the commission puts the deficit at 11.5% of GDP, compared with Darling's forecast for an 11.1% budget gap.
Even Germany, easily the healthiest economy in Europe, is finding itself struggling. Germany's budget deficit will soar well above 4% of GDP in 2010, breaching European Union rules, Finance Minister Peer Steinbrueck was quoted as saying on Wednesday.
Under the EU's Stability and Growth Pact, Euro-Zone members are required to maintain public deficits below 3% of GDP and public debt at less than 60% of GDP.
This sharp increase in deficit spending stems mainly from the stimulus package enacted by Chancellor Angela Merkel. At €50 billion, it is the largest since 1945.
Unfortunately, budgets are far easier to expand than contract. Politicians have a vested interest in their own re-election and nothing works better than promising something today while postponing the cost for future years. Austerity measures are never embraced by the domestic populations - keeping even the honest politicians from imposing these fixes. The recent riots and violence in Greece is proof that an entitled populace is loathe to take responsibility.
Marko's Take
Our latest You Tube video entitled "Social In-Security: The Problem" is now posted. You can access it by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
Sunday, May 2, 2010
Greece Austerity Deal Fuels Civil Unrest
It was bound to happen. As details of a widely anticipated plan to impose severe austerity measures were agreed to in exchange for a massive bailout by the European Union (EU) and the International Monetary Fund (IMF), violent protests broke out in Greece.
The entirety of the three-year IMF-EU package is expected to be announced in Brussels after an emergency Euro-Zone finance ministers' meeting. The aggregate amount is thought to be in the range of the previously reported figures of 120 billion Euros or $160 billion.
It remains unclear whether Sunday's meeting in Brussels will be enough to give final approval for Athens to start receiving the money or whether a summit of Euro-Zone heads of government will be required. In addition, stiff domestic disapproval in Germany and Greece remains a major stumbling block to any deal.
Under the austerity plan, annual holiday bonuses will be limited to 1,000 Euros ($1,330) per year for civil servants and completely eliminated for those with gross monthly salaries over 3,000 Euros ($3,995). Pensioners' bonuses will also be capped at 800 Euros and canceled for those paid more than 2,500 Euros ($3,330). Salary cuts will not extend to the private sector.
Taxes would also be increased, including further hikes on fuel, alcohol and tobacco. The top bracket of sales tax rises from 21% to 23%.
Finance Minister Papaconstantinou said his country's debt would reach 140 % of GDP in 2013 and start falling from 2014, while economic output is projected to contract by 4% in 2010 and by 2.6% in 2011 before it starts recovering slowly beginning in 2012.
MAY DAY protests in Greece turned violent yesterday as youths in gas masks and hoods set fire to vehicles, smashed shop fronts and threw Molotov cocktails and rocks at police in an explosion of fury over austerity measures they claim will hurt only the poor.
The violence came as negotiations were concluding between the socialist government of George Papandreou, the IMF and the EU over the rescue package.
Even greater social unrest is anticipated as resentment simmers among poorer families who are being told to tighten their belts when wealthy Greeks can protect their fortunes by moving their money abroad, some of it into property bargains in London.
Resentment among Greeks as being lazy and corrupt has hardened into outrage at Germany, whose leaders complain that the Mediterranean country should never have been allowed into Europe. Greeks were particularly angered by German suggestions that they sell their islands to pay off the debt.
German Chancellor Angela Merkel insisted on making the International Monetary Fund (IMF) part of any rescue and made German aid contingent on bolder austerity steps from Athens, delaying the rescue and underscoring deep divisions in the bloc.
The time remaining to complete the rescue is running out. Greece has nearly $10 billion in debt due by May 19, or risks default. While a solution is getting closer to being achieved, it is in no way a done deal. And, even if a deal is consummated, there is no way to be certain whether it will prove to be nothing more than a temporary fix.
Marko's Take
Please visit on YouTube at http://www.youtube/markostaketv. Our newest video, entitled "Social In-Security: The Problem will be posted shortly.
The entirety of the three-year IMF-EU package is expected to be announced in Brussels after an emergency Euro-Zone finance ministers' meeting. The aggregate amount is thought to be in the range of the previously reported figures of 120 billion Euros or $160 billion.
It remains unclear whether Sunday's meeting in Brussels will be enough to give final approval for Athens to start receiving the money or whether a summit of Euro-Zone heads of government will be required. In addition, stiff domestic disapproval in Germany and Greece remains a major stumbling block to any deal.
Under the austerity plan, annual holiday bonuses will be limited to 1,000 Euros ($1,330) per year for civil servants and completely eliminated for those with gross monthly salaries over 3,000 Euros ($3,995). Pensioners' bonuses will also be capped at 800 Euros and canceled for those paid more than 2,500 Euros ($3,330). Salary cuts will not extend to the private sector.
Taxes would also be increased, including further hikes on fuel, alcohol and tobacco. The top bracket of sales tax rises from 21% to 23%.
Finance Minister Papaconstantinou said his country's debt would reach 140 % of GDP in 2013 and start falling from 2014, while economic output is projected to contract by 4% in 2010 and by 2.6% in 2011 before it starts recovering slowly beginning in 2012.
MAY DAY protests in Greece turned violent yesterday as youths in gas masks and hoods set fire to vehicles, smashed shop fronts and threw Molotov cocktails and rocks at police in an explosion of fury over austerity measures they claim will hurt only the poor.
The violence came as negotiations were concluding between the socialist government of George Papandreou, the IMF and the EU over the rescue package.
Even greater social unrest is anticipated as resentment simmers among poorer families who are being told to tighten their belts when wealthy Greeks can protect their fortunes by moving their money abroad, some of it into property bargains in London.
Resentment among Greeks as being lazy and corrupt has hardened into outrage at Germany, whose leaders complain that the Mediterranean country should never have been allowed into Europe. Greeks were particularly angered by German suggestions that they sell their islands to pay off the debt.
German Chancellor Angela Merkel insisted on making the International Monetary Fund (IMF) part of any rescue and made German aid contingent on bolder austerity steps from Athens, delaying the rescue and underscoring deep divisions in the bloc.
The time remaining to complete the rescue is running out. Greece has nearly $10 billion in debt due by May 19, or risks default. While a solution is getting closer to being achieved, it is in no way a done deal. And, even if a deal is consummated, there is no way to be certain whether it will prove to be nothing more than a temporary fix.
Marko's Take
Please visit on YouTube at http://www.youtube/markostaketv. Our newest video, entitled "Social In-Security: The Problem will be posted shortly.
Friday, April 30, 2010
The Greek Tweak: Will It Work?
This morning, the newswires were buzzing with reports of an austerity plan for Greece and an expanded loan facility from the International Monetary Fund (IMF). Athens has agreed to the outline of a €24 billion austerity package, including a three-year wage freeze for public sector workers, in return for a multibillion-Euro loan from the Euro-Zone and the IMF.
The austerity package also includes an increase in Greece's Value-Added Tax (VAT), the second this year. Public sector workers will lose their “13th and 14th month” salaries, paid days at Christmas and Easter and see further cuts in allowances. In other words, Greece's government employees will be required to work 14 months for 12 months of pay.
Greece’s abnormally large public sector, which employs about 13% of the workforce, will be gradually reduced through a recruitment freeze, the abolition of short-term contracts and closures of hundreds of outdated state entities. Pension benefits were to be frozen and/or deferred.
Final details of the measures, which were intended to slash the budget deficit by 10-11% of Gross Domestic Product (GDP) over the next three years, are still being worked out. Currently, Greece's budget gap is running at nearly 14% of GDP and is the central cause of the country's threatened insolvency.
Negotiations with officials from the IMF, the European Commission and the European Central Bank are due to be completed at the weekend and the measures will be presented for approval by the Greek parliament next week.
The IMF is looking at raising its share of Greece’s financial rescue package by another €10 billion ($13.2 billion) amid fears that the planned €45 billion bail-out will prove insufficient to curtail the country's sovereign debt crisis. The entire amount deemed necessary to save Greece is now €100-120 billion.
Politicians and economists across Europe have been highly critical of the slowness with which Euro-Zone governments have addressed the Greek crisis, which burst into the open more than six months ago with the disclosure that Greece’s 2009 budget deficit was far higher than previously believed.
The slowness partly reflects the unwillingness of Angela Merkel, Germany’s Chancellor, to commit Berlin to a multibillion-Euro rescue of Greece when German public opinion is against it and there is a risk of a legal challenge to the aid in Germany’s constitutional court.
Will the "Greek Tweak" work? Probably not. The magnitude of the austerity savings are fairly small by comparison to the bail-out needed. In addition, the Greek economy is already spiralling downward and further austerity measures will only deprive the economy of stimulus. In addition, Greek government employee unions will not be an easy sell, regardless of the magnitude of the problem. Finally, until Germany signs on, no deal can possibly be consummated.
The projected cost of the bail-out has nearly tripled in the last two months. Greece has been shut out of the capital markets. There is no reason to believe that all the bad news is on the table. The only real solution is a major restructuring of Greece's debt and a major economic change from the socialist policies which have created the inefficiencies that exist today.
Marko's Take
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The austerity package also includes an increase in Greece's Value-Added Tax (VAT), the second this year. Public sector workers will lose their “13th and 14th month” salaries, paid days at Christmas and Easter and see further cuts in allowances. In other words, Greece's government employees will be required to work 14 months for 12 months of pay.
Greece’s abnormally large public sector, which employs about 13% of the workforce, will be gradually reduced through a recruitment freeze, the abolition of short-term contracts and closures of hundreds of outdated state entities. Pension benefits were to be frozen and/or deferred.
Final details of the measures, which were intended to slash the budget deficit by 10-11% of Gross Domestic Product (GDP) over the next three years, are still being worked out. Currently, Greece's budget gap is running at nearly 14% of GDP and is the central cause of the country's threatened insolvency.
Negotiations with officials from the IMF, the European Commission and the European Central Bank are due to be completed at the weekend and the measures will be presented for approval by the Greek parliament next week.
The IMF is looking at raising its share of Greece’s financial rescue package by another €10 billion ($13.2 billion) amid fears that the planned €45 billion bail-out will prove insufficient to curtail the country's sovereign debt crisis. The entire amount deemed necessary to save Greece is now €100-120 billion.
Politicians and economists across Europe have been highly critical of the slowness with which Euro-Zone governments have addressed the Greek crisis, which burst into the open more than six months ago with the disclosure that Greece’s 2009 budget deficit was far higher than previously believed.
The slowness partly reflects the unwillingness of Angela Merkel, Germany’s Chancellor, to commit Berlin to a multibillion-Euro rescue of Greece when German public opinion is against it and there is a risk of a legal challenge to the aid in Germany’s constitutional court.
Will the "Greek Tweak" work? Probably not. The magnitude of the austerity savings are fairly small by comparison to the bail-out needed. In addition, the Greek economy is already spiralling downward and further austerity measures will only deprive the economy of stimulus. In addition, Greek government employee unions will not be an easy sell, regardless of the magnitude of the problem. Finally, until Germany signs on, no deal can possibly be consummated.
The projected cost of the bail-out has nearly tripled in the last two months. Greece has been shut out of the capital markets. There is no reason to believe that all the bad news is on the table. The only real solution is a major restructuring of Greece's debt and a major economic change from the socialist policies which have created the inefficiencies that exist today.
Marko's Take
For Southern California readers interested in a good animal cause, the California Wildlife Center is having a 5K walk in Malibu to raise funds for this wonderful organization. For more information, click here http://www.californiawildlifecenter.org/. Hope to see you there!
Wednesday, April 28, 2010
Euro-Zone Contagion Spreads
Greece’s credit rating was cut 3 steps to junk status by Standard and Poor’s (S&P), the first time a Euro-Zone member has lost its investment grade since the currency’s 1999 debut. The Euro weakened and stock markets throughout the region tumbled.
Greece was lowered to BB+ from BBB+ by S&P, which also warned that bondholders could recover as little as 30% of their initial investment if the country restructures its debt. The move, which puts Greek debt on par with bonds issued by Azerbaijan and Egypt, came minutes after the rating agency reduced Portugal by two steps to A- from A+.
Yesterday, the spread on Greek 10-year bonds over German counterparts widened to 6.75%, the highest since at least 1998, as investors increased bets that Greece will restructure its debt. The Portuguese spread jumped 0.59% to 2.77% and the Spanish spread rose to 1.13%.
The spread between Portugese and benchmark German 10-year bonds rose about 0.5% Tuesday to reach its highest point since the creation of the Euro. The higher spread demonstrates less confidence in Portugal, whose bonds had an interest rate of 5.86% higher than German bonds on Tuesday.
Germany, where the bail-out is unpopular with voters, has been slow in authorizing the release of funds. Its delay has furthered market panic and driven Greek 2-year bond yields to as high as 21%.
Greek 5-year yields hit 10.6%, higher than many emerging market economies, including Ecuador at 10.5% and Ukraine at 7.1%.
The carnage continued into this morning's early trading. The yield on 10-year Greek bonds surged to 11.24% early Wednesday from 9.68% on Tuesday. The yield is the highest for the 10-year since the introduction of the Euro in 2002. The 2-year bonds were trading with yields approaching 20%.
Today's jump in the yield on the Greek bond has led to an enormous spread of 8.22% compared with German bond yields. The yield on the German 10-year bond, considered the European benchmark, slipped to 3.02% early Wednesday, suggesting a flight to safety.
Greece needs to raise AT LEAST 9 billion Euros by May 19, but, given the current market yields, will have no chance of attracting institutional investors.
The marketplace has now spoken. Greece will need a major restructuring and existing bondholders will receive a haircut of at least 50% and possibly larger. The bail-out package, just activated, will be insufficient to cure the disease. While Germany continues to say the right things, such as indicating that Greece must not be allowed to fail, it has yet to act. Given the growing unpopularity in Germany of bailing out Greece, any aid package remains to be seen.
The only question now is how far the contagion will spread. Will Portugal be next to fall in the abyss? How many more countries will be taken down? No need to worry. Marko's Take is on the job.
Marko's Take
Please visit our new YouTube channel at http://www.youtube.com/markostaketv. Our new video blog on the Legality of the Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg). Our newest video, entitled "Social In-Security: The Problem" will be posted this weekend.
Greece was lowered to BB+ from BBB+ by S&P, which also warned that bondholders could recover as little as 30% of their initial investment if the country restructures its debt. The move, which puts Greek debt on par with bonds issued by Azerbaijan and Egypt, came minutes after the rating agency reduced Portugal by two steps to A- from A+.
Yesterday, the spread on Greek 10-year bonds over German counterparts widened to 6.75%, the highest since at least 1998, as investors increased bets that Greece will restructure its debt. The Portuguese spread jumped 0.59% to 2.77% and the Spanish spread rose to 1.13%.
The spread between Portugese and benchmark German 10-year bonds rose about 0.5% Tuesday to reach its highest point since the creation of the Euro. The higher spread demonstrates less confidence in Portugal, whose bonds had an interest rate of 5.86% higher than German bonds on Tuesday.
Germany, where the bail-out is unpopular with voters, has been slow in authorizing the release of funds. Its delay has furthered market panic and driven Greek 2-year bond yields to as high as 21%.
Greek 5-year yields hit 10.6%, higher than many emerging market economies, including Ecuador at 10.5% and Ukraine at 7.1%.
The carnage continued into this morning's early trading. The yield on 10-year Greek bonds surged to 11.24% early Wednesday from 9.68% on Tuesday. The yield is the highest for the 10-year since the introduction of the Euro in 2002. The 2-year bonds were trading with yields approaching 20%.
Today's jump in the yield on the Greek bond has led to an enormous spread of 8.22% compared with German bond yields. The yield on the German 10-year bond, considered the European benchmark, slipped to 3.02% early Wednesday, suggesting a flight to safety.
Greece needs to raise AT LEAST 9 billion Euros by May 19, but, given the current market yields, will have no chance of attracting institutional investors.
The marketplace has now spoken. Greece will need a major restructuring and existing bondholders will receive a haircut of at least 50% and possibly larger. The bail-out package, just activated, will be insufficient to cure the disease. While Germany continues to say the right things, such as indicating that Greece must not be allowed to fail, it has yet to act. Given the growing unpopularity in Germany of bailing out Greece, any aid package remains to be seen.
The only question now is how far the contagion will spread. Will Portugal be next to fall in the abyss? How many more countries will be taken down? No need to worry. Marko's Take is on the job.
Marko's Take
Please visit our new YouTube channel at http://www.youtube.com/markostaketv. Our new video blog on the Legality of the Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg). Our newest video, entitled "Social In-Security: The Problem" will be posted this weekend.
Monday, April 26, 2010
Greece: Going, Going... Gone
In early trading today, Greek bond yields exploded. Two-year Greek bonds surpassed the 14% yield level - a 4% jump in one day. The 10-year bond approached 10%.
Greece has activated a $60 billion bail-out from the International Monetary Fund at rates of 5% and below. The jump in Greece debt yields suggests a market belief that the bail-out, even if implemented, will be insufficient to stem the crisis.
In addition, the yield curve is now "inverted" (short-term yields exceeding long-term yields) indicating an evaporation of liquidity, which will surely translate into more severe economic hardship
Comments from Germany’s foreign minister Guido Westerwelle on Monday saying the German government has not yet committed to providing financial aid to Greece, also didn't help.
When asked about Germany's intentions toward providing assistance to Greece, Chancellor Angela Merkel has continually vascillated, a trait she is now becoming famous for.
Domestically, a German assistance plan for Greece is highly unpopular. The majority of the Germans believe they are rewarding Greece for cheating itself into the Euro, forging its balance sheets and then spending a decade living beyond their means while the German workers had to endure a painful period of restructuring and wage freezes.
The German Chancellor also emphasized that the decision to grant aid to prevent a Greek insolvency would be made only after Greece committed to a rigid deficit-reduction plan for years to come. "These discussions are ongoing," she said. "Greece has to accept harsh measures for several years."
Italian Foreign Minister Franco Frattini expressed concern about Germany's "intransigence" over Greece, saying a quick rescue operation is needed to support the Euro's stability.
Opposition parties blame electoral politics for Berlin's lack of haste to help Greece. Ms. Merkel's CDU party faces a tight regional election in the state of North Rhine-Westphalia on May 9. With German aid for Greece deeply unpopular in Germany, early commitment to bail-out the debt-burdened Mediterranean country could change the minds of some voters and could cost Ms. Merkel her majority in the upper house of Parliament.
Greece has said it wants aid from the joint EU-IMF loan mechanism to be made available within days of its formal request, which Athens made Friday. Spokespersons for the EU and IMF indicated that the response could be "positive or negative". The trading in Greek debt indicates an expectation of a thumbs down.
Marko's Take
Please visit our new YouTube channel at (http://www.youtube.com/markostaketv). Our latest video on the Legality Of The Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
If you're interested in 3D content delivered to your mobile phone, please visit our website at (http://www.e3dlabs.com/).
On the contagion side, the cost of insuring Portuguese government debt against default jumped to a record high of 288 basis points on Monday versus 278.8 basis points on Friday, according to Reuters.
Greece has activated a $60 billion bail-out from the International Monetary Fund at rates of 5% and below. The jump in Greece debt yields suggests a market belief that the bail-out, even if implemented, will be insufficient to stem the crisis.
In addition, the yield curve is now "inverted" (short-term yields exceeding long-term yields) indicating an evaporation of liquidity, which will surely translate into more severe economic hardship
Comments from Germany’s foreign minister Guido Westerwelle on Monday saying the German government has not yet committed to providing financial aid to Greece, also didn't help.
When asked about Germany's intentions toward providing assistance to Greece, Chancellor Angela Merkel has continually vascillated, a trait she is now becoming famous for.
Domestically, a German assistance plan for Greece is highly unpopular. The majority of the Germans believe they are rewarding Greece for cheating itself into the Euro, forging its balance sheets and then spending a decade living beyond their means while the German workers had to endure a painful period of restructuring and wage freezes.
The German Chancellor also emphasized that the decision to grant aid to prevent a Greek insolvency would be made only after Greece committed to a rigid deficit-reduction plan for years to come. "These discussions are ongoing," she said. "Greece has to accept harsh measures for several years."
Italian Foreign Minister Franco Frattini expressed concern about Germany's "intransigence" over Greece, saying a quick rescue operation is needed to support the Euro's stability.
Opposition parties blame electoral politics for Berlin's lack of haste to help Greece. Ms. Merkel's CDU party faces a tight regional election in the state of North Rhine-Westphalia on May 9. With German aid for Greece deeply unpopular in Germany, early commitment to bail-out the debt-burdened Mediterranean country could change the minds of some voters and could cost Ms. Merkel her majority in the upper house of Parliament.
Greece has said it wants aid from the joint EU-IMF loan mechanism to be made available within days of its formal request, which Athens made Friday. Spokespersons for the EU and IMF indicated that the response could be "positive or negative". The trading in Greek debt indicates an expectation of a thumbs down.
Marko's Take
Please visit our new YouTube channel at (http://www.youtube.com/markostaketv). Our latest video on the Legality Of The Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
If you're interested in 3D content delivered to your mobile phone, please visit our website at (http://www.e3dlabs.com/).
On the contagion side, the cost of insuring Portuguese government debt against default jumped to a record high of 288 basis points on Monday versus 278.8 basis points on Friday, according to Reuters.
Sunday, April 25, 2010
Greek Financial Crisis Passing Point Of No Return
After months of increasingly desperate attempts to fix Greece, things have deteriorated to such an extent that they may be no longer fixable.
On Friday, Greece formally requested to access a $60 billion emergency aid package, initiating a bailout process that will test the financial strength of Euro-Zone.
Prime Minister George Papandreou called his country's economy a "sinking ship," as borrowing costs reached 12-year highs and recent fiscal measures didn't create the market support needed to save his country.
The yield on Greece's benchmark two-year note topped 11%, ten-year bond yields reached 8.83%, while rating agency Moody's downgraded the country's credit rating one notch to A3 - the second downgrade this year. European Union statistics service Eurostat on Thursday revised Greece's deficit to 13.6% of Gross Domestic Product (GDP) in 2009, up from 12.7%, questioning the country's ability to reduce the budget deficit to 8.7% this year as planned. The revision is up from 13% of GDP just a month ago.
Greece is facing $11.4 billion of bonds maturing on May 19 and hopes a request made now will accelerate the bailout process in time to meet that deadline.
Even if this initial bailout package is adopted, it is questionable as to whether it will even cover Greece's debt obligations for 2010.
The Economist projects Greece will run up an additional $89 billion in debt by 2014, doubting Greece's ability to make effective budget cuts while trying to emerge from a recession. As debt piles up, investors will be less likely to buy Greek bonds and draconian austerity fixes will hinder economic growth.
Sovereign debt concerns have already spread to other Euro-Zone nations and are escalating with Greece's situation. Fellow "PIGS" (Portugal, Ireland Greece and Spain), already faced increasing bond yields this week, strengthening the argument that Greece is the start of a debt contagion spreading through Europe to the United States.
The aid package will give Greece $40 billion in 3-year loans from its fellow Euro-Zone nations at a 5% interest rate and an additional $20 billion from the International Monetary Fund (IMF) will be available at an even lower rate. The offer was announced a couple of weeks ago in hopes the pledge of support would be enough to encourage investor confidence.
As yields on sovereign debt of the "PIGS" nations grow, the likelihood of raising capital from institutional investors diminishes. Greece had hoped to raise $10 billion from U.S. investors, but now that appears to be dead. As the contagion continues to spread, it's a matter of time before the thin fabric of the global financial community takes many more countries down with it.
Marko's Take
Please visit us on YouTube. We have just posted a video blog on the Legality Of The Personal Income Tax (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg) or, if you're interested in a new technology to put 3D content on any smart phone, visit my new website at http://e3dlabs.com/.
On Friday, Greece formally requested to access a $60 billion emergency aid package, initiating a bailout process that will test the financial strength of Euro-Zone.
Prime Minister George Papandreou called his country's economy a "sinking ship," as borrowing costs reached 12-year highs and recent fiscal measures didn't create the market support needed to save his country.
The yield on Greece's benchmark two-year note topped 11%, ten-year bond yields reached 8.83%, while rating agency Moody's downgraded the country's credit rating one notch to A3 - the second downgrade this year. European Union statistics service Eurostat on Thursday revised Greece's deficit to 13.6% of Gross Domestic Product (GDP) in 2009, up from 12.7%, questioning the country's ability to reduce the budget deficit to 8.7% this year as planned. The revision is up from 13% of GDP just a month ago.
Greece is facing $11.4 billion of bonds maturing on May 19 and hopes a request made now will accelerate the bailout process in time to meet that deadline.
Even if this initial bailout package is adopted, it is questionable as to whether it will even cover Greece's debt obligations for 2010.
The Economist projects Greece will run up an additional $89 billion in debt by 2014, doubting Greece's ability to make effective budget cuts while trying to emerge from a recession. As debt piles up, investors will be less likely to buy Greek bonds and draconian austerity fixes will hinder economic growth.
Sovereign debt concerns have already spread to other Euro-Zone nations and are escalating with Greece's situation. Fellow "PIGS" (Portugal, Ireland Greece and Spain), already faced increasing bond yields this week, strengthening the argument that Greece is the start of a debt contagion spreading through Europe to the United States.
The aid package will give Greece $40 billion in 3-year loans from its fellow Euro-Zone nations at a 5% interest rate and an additional $20 billion from the International Monetary Fund (IMF) will be available at an even lower rate. The offer was announced a couple of weeks ago in hopes the pledge of support would be enough to encourage investor confidence.
As yields on sovereign debt of the "PIGS" nations grow, the likelihood of raising capital from institutional investors diminishes. Greece had hoped to raise $10 billion from U.S. investors, but now that appears to be dead. As the contagion continues to spread, it's a matter of time before the thin fabric of the global financial community takes many more countries down with it.
Marko's Take
Please visit us on YouTube. We have just posted a video blog on the Legality Of The Personal Income Tax (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg) or, if you're interested in a new technology to put 3D content on any smart phone, visit my new website at http://e3dlabs.com/.
Friday, April 16, 2010
Greek Bond Sale In Doubt As Problems Re-Surface
Greece had planned a $10 billion bond sale in the U.S., but, thus far, investment demand is poor. Giant bond manager Pimco has already announced their lack of interest and doubts that the issue will be successful. Morgan Stanley will lead the sales effort which is scheduled to begin April 20, with a national road show.
Athens has reduced its expecations and now hopes to raise between $1 billion and $4 billion, an amount not sufficient to plug it's upcoming May budget deficit. While April's shortfall is now satisfied, Greece needs to raise $12 billion for next month's requirements.
Greek debt spreads have resumed their widening versus German Bunds, following recent conflicting comments from Euro-Zone members, reports of potential delays and legislative requirements needed to trigger the 30 billion Euros worth of loans offered by European Monetary Union (EMU) governments.
Ten-year spreads earlier Thursday hit a 5-day high of 4.27% compared to the benchmark 10-year German Bund.
That is a mere 16 basis points below the 11-year high hit on Thursday April 8, which was just before the EMU finance ministers agreed to a 3-year loan plan for Greece.
Short-dated Greek bond spreads fell on Thursday after the news that the country would start discussions on the loan package. The yield on 2-year bonds fell to 6.34% from 6.66% on Wednesday. They hit a high of 7.1% last week.
Although the IMF has been involved in co-financed rescue packages before, as in Latvia and Hungary, it was clear that the fund took the lead role in setting conditions and disbursing tranches of money. The IMF would be expected to make available another €10-15 billion as a stand-by loan on top of the €30 billon available from Euro-Zone member-states.
Analysts said uncertainty over the agreement remained high, with reports in the German press suggesting that it might have to be increased to €90 billon.
It appears that the crux of the Greek budget deficit is runaway corruption.
A study to be published in coming weeks by the Washington-based Brookings Institution, finds that bribery and patronage are major contributors to the country's ballooning debt, depriving the Greek state each year of the equivalent of at least 8% of its gross domestic product, or more than €20 billion (about $27 billion).
Greece's budget deficit averaged around 6.5% of GDP over the past five years, including a 13% shortfall last year. If Greece's public sector were as clean and transparent as Sweden's, or the Netherlands', the country might have posted budget surpluses over the past decade, the study suggests.
Greece places last in the 16-nation Euro-Zone in a ranking by World Bank researchers of how well countries control corruption and last in the 27-nation European Union, tied with Bulgaria and Romania.
The Greek financial crisis continues to take center stage in the global financial turmoil. Despite intermittent reports that solutions have been reached, it's clear that a long-term solution will be far more problematic. Until the situation is truly stabilized, Greece's sovereign debt will be at risk.
Marko's Take
Please check out our new YouTube video on the Legality Of The Personal Income Tax. The video can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
Athens has reduced its expecations and now hopes to raise between $1 billion and $4 billion, an amount not sufficient to plug it's upcoming May budget deficit. While April's shortfall is now satisfied, Greece needs to raise $12 billion for next month's requirements.
Greek debt spreads have resumed their widening versus German Bunds, following recent conflicting comments from Euro-Zone members, reports of potential delays and legislative requirements needed to trigger the 30 billion Euros worth of loans offered by European Monetary Union (EMU) governments.
Ten-year spreads earlier Thursday hit a 5-day high of 4.27% compared to the benchmark 10-year German Bund.
That is a mere 16 basis points below the 11-year high hit on Thursday April 8, which was just before the EMU finance ministers agreed to a 3-year loan plan for Greece.
Short-dated Greek bond spreads fell on Thursday after the news that the country would start discussions on the loan package. The yield on 2-year bonds fell to 6.34% from 6.66% on Wednesday. They hit a high of 7.1% last week.
Although the IMF has been involved in co-financed rescue packages before, as in Latvia and Hungary, it was clear that the fund took the lead role in setting conditions and disbursing tranches of money. The IMF would be expected to make available another €10-15 billion as a stand-by loan on top of the €30 billon available from Euro-Zone member-states.
Analysts said uncertainty over the agreement remained high, with reports in the German press suggesting that it might have to be increased to €90 billon.
It appears that the crux of the Greek budget deficit is runaway corruption.
A study to be published in coming weeks by the Washington-based Brookings Institution, finds that bribery and patronage are major contributors to the country's ballooning debt, depriving the Greek state each year of the equivalent of at least 8% of its gross domestic product, or more than €20 billion (about $27 billion).
Greece's budget deficit averaged around 6.5% of GDP over the past five years, including a 13% shortfall last year. If Greece's public sector were as clean and transparent as Sweden's, or the Netherlands', the country might have posted budget surpluses over the past decade, the study suggests.
Greece places last in the 16-nation Euro-Zone in a ranking by World Bank researchers of how well countries control corruption and last in the 27-nation European Union, tied with Bulgaria and Romania.
The Greek financial crisis continues to take center stage in the global financial turmoil. Despite intermittent reports that solutions have been reached, it's clear that a long-term solution will be far more problematic. Until the situation is truly stabilized, Greece's sovereign debt will be at risk.
Marko's Take
Please check out our new YouTube video on the Legality Of The Personal Income Tax. The video can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
Monday, April 12, 2010
Finally, A Rescue Plan To Save Greece: But, Will It Work?
Over the weekend, the details of a plan to bail out Greece were finalized.
Euro-Zone members have promised to provide up to €30 bilion ($40.5 billion) in loans to Greece over the next year to ward off an oncoming debt crisis that has de-stabilized financial markets and posed the most serious challenge to the Euro in its history.
Those funds were agreed to during an emergency teleconference of Euro-Zone finance ministers on Sunday and would be supplemented by contributions from the International Monetary Fund (IMF) that could produce an additional €15 billion ($20.2 billion).
The rates charged to Athens would be around 5% for a 3-year fixed loan – above the IMF’s standard lending rate but below those currently demanded by institutional investors. Two-year Greek bonds were trading at 7.45% last week.
One of the most contentious issues was interest rates, with Germany insisting that Greece pay “market rates” while France and other Euro-Zone members pushed for subsidized rates.
News of the rescue plan gave Greek debt and Credit Default Swaps (CDS) a significant bounce.
The cost of insuring Greek sovereign debt against default dropped sharply in early trading Monday, with 5-year sovereign CDS trading at around 3.64%, down sharply from a closing level of 4.26% Friday. That is the equivalent of a drop of €62,000 in the annual cost of insuring €10 million of Greek government debt for 5 years. Greece's 5-year CDS hit 4.70% at their highest last week . They are now at their tightest levels since March 5.
In cash bonds, the brighter market mood was most evident in short-term debt, demonstrating that investors see a much lower risk of an imminent Greek debt default. Greece's 1-year CDS dropped to 4.62% Monday morning, from 6.50% Friday, while 3-year CDS fell to 3.97% from 5.14%.
Despite the relief emmanating from the new plan, a significant hurdle comes later in the month, when Greek government officials will fly to the U.S. around April 20 to test investor interest in a planned dollar-denominated bond issue of $10 billion. The debt placement is deemed important to help fill Greek funding gaps through the end of May.
The compromise on the interest rates charged Greece has raised questions. A 5% rate for a 3-year fixed-rate loan represents a concession relative to last week's market levels. But, this is still 3.7% over 3-year German debt — a long way north of where the Greeks would like to be able to borrow. If Greece were to take a 10-year loan under the package, it would be at a rate of more than 7%, a yield Athens deems extreme.
This may act as a floor to private-market rates. Institutional investors may wonder why they should receive less than Greece's fellow Euro-Zone members.
Now that the immediate funding issue has given Athens a sigh of relief, the key will be whether Greece can reign in its budget deficit, which last year ran at 13% of GDP. Given the high level of debt and the accompanying high levels of interest rate on that debt, this may prove to be a tall order without draconian budget cuts.
Marko's Take
Our new YouTube video on the Legality Of The Personal Income Tax is now posted. You can access the video here (http://www.youtube.com/markostaketv#p/u/2/1TInKnCIikg).
Euro-Zone members have promised to provide up to €30 bilion ($40.5 billion) in loans to Greece over the next year to ward off an oncoming debt crisis that has de-stabilized financial markets and posed the most serious challenge to the Euro in its history.
Those funds were agreed to during an emergency teleconference of Euro-Zone finance ministers on Sunday and would be supplemented by contributions from the International Monetary Fund (IMF) that could produce an additional €15 billion ($20.2 billion).
The rates charged to Athens would be around 5% for a 3-year fixed loan – above the IMF’s standard lending rate but below those currently demanded by institutional investors. Two-year Greek bonds were trading at 7.45% last week.
One of the most contentious issues was interest rates, with Germany insisting that Greece pay “market rates” while France and other Euro-Zone members pushed for subsidized rates.
News of the rescue plan gave Greek debt and Credit Default Swaps (CDS) a significant bounce.
The cost of insuring Greek sovereign debt against default dropped sharply in early trading Monday, with 5-year sovereign CDS trading at around 3.64%, down sharply from a closing level of 4.26% Friday. That is the equivalent of a drop of €62,000 in the annual cost of insuring €10 million of Greek government debt for 5 years. Greece's 5-year CDS hit 4.70% at their highest last week . They are now at their tightest levels since March 5.
In cash bonds, the brighter market mood was most evident in short-term debt, demonstrating that investors see a much lower risk of an imminent Greek debt default. Greece's 1-year CDS dropped to 4.62% Monday morning, from 6.50% Friday, while 3-year CDS fell to 3.97% from 5.14%.
Despite the relief emmanating from the new plan, a significant hurdle comes later in the month, when Greek government officials will fly to the U.S. around April 20 to test investor interest in a planned dollar-denominated bond issue of $10 billion. The debt placement is deemed important to help fill Greek funding gaps through the end of May.
The compromise on the interest rates charged Greece has raised questions. A 5% rate for a 3-year fixed-rate loan represents a concession relative to last week's market levels. But, this is still 3.7% over 3-year German debt — a long way north of where the Greeks would like to be able to borrow. If Greece were to take a 10-year loan under the package, it would be at a rate of more than 7%, a yield Athens deems extreme.
This may act as a floor to private-market rates. Institutional investors may wonder why they should receive less than Greece's fellow Euro-Zone members.
Now that the immediate funding issue has given Athens a sigh of relief, the key will be whether Greece can reign in its budget deficit, which last year ran at 13% of GDP. Given the high level of debt and the accompanying high levels of interest rate on that debt, this may prove to be a tall order without draconian budget cuts.
Marko's Take
Our new YouTube video on the Legality Of The Personal Income Tax is now posted. You can access the video here (http://www.youtube.com/markostaketv#p/u/2/1TInKnCIikg).
Thursday, April 8, 2010
Greek Financial Crisis Intensifies Threatening Sovereign Debt
Despite global efforts to contain the problems in Greece's fiscal situation, it appears that the crisis is accelerating and threatening to spill-over into the world financial structure.
Greece sold €5 billion of 7-year notes on March 29, but since the issue, renewed concerns have caused the bonds to fall by more than 10% of face. Yields on Greek's sovereign debt have jumped sharply.
Greek 10-year bond yields are currently trading with rates exceeding 7.5%, up about 1% in a couple of days. Yesterday, yields on 2-year Greek bonds leaped more than 1.2% to nearly 6.5%, an extraordinary daily move for any sovereign debt.
The move came amid concerns about the ongoing negotiations regarding rescue plans.
Greece has been unable to curtail speculation that it may default by failing to create a viable strategy to handle its growing budget deficit. Concern is growing as to the terms and credibility of a European Union rescue plan, or one from the International Monetary Fund.
As a result, the interest rate spread Athens has to pay above German Bunds has reached nearly 4.5%, the highest level since Greece joined the Euro-Zone.
The rapidly rising yields reflect the deteriorating economic outlook. A new forecast by The European Commission is expected to project a decline in the Greek economy this year by 2.5%, versus prior forecasts of a contraction of 2%.
Eurostat, the European Union statistical service, estimates Greece's 2009 budget deficit exceeded 13% of Gross Domestic Product (GDP). By comparison, finance ministry officials said Greece was still on track to reduce this year’s deficit to 8.7% of GDP.
The crisis is taking its toll on Greece's banking sector. Athens' 4 largest banks are seeking government support to help alleviate a liquidity squeeze resulting from a significant flight of deposits in the first 2 months of the year.
Finance Minister George Papaconstantinou said on Wednesday that the banks are seeking access to the €28 billion ($37 billion) government rescue plan that was put together during the 2008 global credit crunch.
Rating agency Moody’s recently downgraded all 4 banks by one notch, noting Greece’s deteriorating economic outlook.
Greece will be seeking funding in the United States, after efforts to raise money in China and Europe were met with very poor interest. Instead, Athens will seek to raise $5-$10 billion from U.S. investors to help fund its May borrowing needs of about €10 billion of upcoming debt maturities and interest payments.
Greece, which had attracted demand of more than €25 billion for its first bond sale of the year in January, had been only able to attract €6 billion for its last bond sale at the end of March.
Global stock markets have declined sharply in the last day and early this morning on the renewed sovereign debt fears.
Despite pre-mature proclamations that the situation had been resolved, it's clear that the forces of depression and asset price contraction are continuing to exert a seriously adverse impact on the world financial structure.
Marko's Take
Please stop by and visit us on YouTube at http://www.youtube.com/markostaketv. Our new video on the legality of the Personal Income Tax will be posted shortly.
Greece sold €5 billion of 7-year notes on March 29, but since the issue, renewed concerns have caused the bonds to fall by more than 10% of face. Yields on Greek's sovereign debt have jumped sharply.
Greek 10-year bond yields are currently trading with rates exceeding 7.5%, up about 1% in a couple of days. Yesterday, yields on 2-year Greek bonds leaped more than 1.2% to nearly 6.5%, an extraordinary daily move for any sovereign debt.
The move came amid concerns about the ongoing negotiations regarding rescue plans.
Greece has been unable to curtail speculation that it may default by failing to create a viable strategy to handle its growing budget deficit. Concern is growing as to the terms and credibility of a European Union rescue plan, or one from the International Monetary Fund.
As a result, the interest rate spread Athens has to pay above German Bunds has reached nearly 4.5%, the highest level since Greece joined the Euro-Zone.
The rapidly rising yields reflect the deteriorating economic outlook. A new forecast by The European Commission is expected to project a decline in the Greek economy this year by 2.5%, versus prior forecasts of a contraction of 2%.
Eurostat, the European Union statistical service, estimates Greece's 2009 budget deficit exceeded 13% of Gross Domestic Product (GDP). By comparison, finance ministry officials said Greece was still on track to reduce this year’s deficit to 8.7% of GDP.
The crisis is taking its toll on Greece's banking sector. Athens' 4 largest banks are seeking government support to help alleviate a liquidity squeeze resulting from a significant flight of deposits in the first 2 months of the year.
Finance Minister George Papaconstantinou said on Wednesday that the banks are seeking access to the €28 billion ($37 billion) government rescue plan that was put together during the 2008 global credit crunch.
Rating agency Moody’s recently downgraded all 4 banks by one notch, noting Greece’s deteriorating economic outlook.
Greece will be seeking funding in the United States, after efforts to raise money in China and Europe were met with very poor interest. Instead, Athens will seek to raise $5-$10 billion from U.S. investors to help fund its May borrowing needs of about €10 billion of upcoming debt maturities and interest payments.
Greece, which had attracted demand of more than €25 billion for its first bond sale of the year in January, had been only able to attract €6 billion for its last bond sale at the end of March.
Global stock markets have declined sharply in the last day and early this morning on the renewed sovereign debt fears.
Despite pre-mature proclamations that the situation had been resolved, it's clear that the forces of depression and asset price contraction are continuing to exert a seriously adverse impact on the world financial structure.
Marko's Take
Please stop by and visit us on YouTube at http://www.youtube.com/markostaketv. Our new video on the legality of the Personal Income Tax will be posted shortly.
Friday, March 26, 2010
When Irish Eyes Aren't Smiling: More Problems In The Euro-Zone
The Euro-Zone is falling apart country-by-country. We've written about the panoply of problems facing Greece, Portugal and Great Britain (http://markostake.blogspot.com/2010/03/soverign-debt-redux-spill-over.html).
Ireland is also suffering and perhaps as badly as Greece (http://markostake.blogspot.com/2010/03/greek-crisis-threatening-global.html).
Ireland's deeper recession continued in the fourth quarter of 2009, as the economy shrunk another 2.3%, as the result of devastating floods in the west of the country and a steep decline in building activity, following the crash in real estate.
This marked a reversal from the third quarter, which had shown a small increase in Gross Domestic Product (GDP) of 0.3% – giving rise to false optimism that Ireland had come out of recession. Third quarter GDP was later revised to a negative 0.1%.
Minister of Finance, Brian Lenihan, said the year-on-year GDP decline of 7.1% was “marginally better” than the estimate at the time of the budget in December of 7.5%.
Economists, however, were more gloomy. Alan McQuaid, of Bloxham Stockbrokers, said “not only did Ireland not come out of recession in Q3, but it actually went into a deeper downturn in the final quarter”.
He calculated the cumulative decline in GDP since the end of 2007 was a “staggering” 12.7%, more than double the rate of the slowdown in the Euro-Zone as a whole!
Ireland is particularly beset with fall-out from the "boom-bust" in real estate. Officials estimate the number of house completions in 2009 at 26,000, half the 52,000 built in 2008. With an overhang supply of 120,000 houses for sale or rent, not including vacant homes, the rate of housebuilding in 2010 is expected to halve again.
At the height of the boom in 2007 there were 87,000 houses built in Ireland. This compares with England and Wales, an area with 13 times the population, where house building is running at about 150,000 units a year.
Finance Minister Lenihan warned on Tuesday that the nation faced “the challenge of [its] life”, as he slapped higher taxes on the middle classes in an emergency budget aimed at tackling the spiralling economic crisis.
Mr. Lenihan outlined plans to set up a national asset management agency to take over an estimated €80 billion-€90 billion of bad loans extended by local domestic banks to developers and property companies that now look as if they will not be able to repay.
Forecasting an 8% drop in Ireland’s GDP this year, Lenihan said he had to tackle soaring government borrowing and called on political opponents to “set aside narrow sectional interests” and support the tax increases, which are highly unpopular domestically.
Rating agency Standard & Poor’s recently downgraded Ireland’s sovereign debt. Even after Tuesday’s measures, Mr Lenihan forecast government borrowing would be the equivalent of 10.75% of GDP – more than 3 times the limit on countries joining the Euro.
So, unhealthy countries continue to get less healthy. Tragically, this vicious cycle is threatening the entire Euro-Zone and is making it impossible for the EU, as a whole, to provide emergency aid. As a result, the situation threatens to be a contagion to the entire global financial community.
Marko's Take
If you're wondering about the legality of the Personal Income Tax, our latest video blog will be posted in the next several days covering this complex topic as we head into tax season. To view our current YouTube videos, you can visit them here http://www.youtube.com/markostaketv.
Ireland is also suffering and perhaps as badly as Greece (http://markostake.blogspot.com/2010/03/greek-crisis-threatening-global.html).
Ireland's deeper recession continued in the fourth quarter of 2009, as the economy shrunk another 2.3%, as the result of devastating floods in the west of the country and a steep decline in building activity, following the crash in real estate.
This marked a reversal from the third quarter, which had shown a small increase in Gross Domestic Product (GDP) of 0.3% – giving rise to false optimism that Ireland had come out of recession. Third quarter GDP was later revised to a negative 0.1%.
Minister of Finance, Brian Lenihan, said the year-on-year GDP decline of 7.1% was “marginally better” than the estimate at the time of the budget in December of 7.5%.
Economists, however, were more gloomy. Alan McQuaid, of Bloxham Stockbrokers, said “not only did Ireland not come out of recession in Q3, but it actually went into a deeper downturn in the final quarter”.
He calculated the cumulative decline in GDP since the end of 2007 was a “staggering” 12.7%, more than double the rate of the slowdown in the Euro-Zone as a whole!
Ireland is particularly beset with fall-out from the "boom-bust" in real estate. Officials estimate the number of house completions in 2009 at 26,000, half the 52,000 built in 2008. With an overhang supply of 120,000 houses for sale or rent, not including vacant homes, the rate of housebuilding in 2010 is expected to halve again.
At the height of the boom in 2007 there were 87,000 houses built in Ireland. This compares with England and Wales, an area with 13 times the population, where house building is running at about 150,000 units a year.
Finance Minister Lenihan warned on Tuesday that the nation faced “the challenge of [its] life”, as he slapped higher taxes on the middle classes in an emergency budget aimed at tackling the spiralling economic crisis.
Mr. Lenihan outlined plans to set up a national asset management agency to take over an estimated €80 billion-€90 billion of bad loans extended by local domestic banks to developers and property companies that now look as if they will not be able to repay.
Forecasting an 8% drop in Ireland’s GDP this year, Lenihan said he had to tackle soaring government borrowing and called on political opponents to “set aside narrow sectional interests” and support the tax increases, which are highly unpopular domestically.
Rating agency Standard & Poor’s recently downgraded Ireland’s sovereign debt. Even after Tuesday’s measures, Mr Lenihan forecast government borrowing would be the equivalent of 10.75% of GDP – more than 3 times the limit on countries joining the Euro.
So, unhealthy countries continue to get less healthy. Tragically, this vicious cycle is threatening the entire Euro-Zone and is making it impossible for the EU, as a whole, to provide emergency aid. As a result, the situation threatens to be a contagion to the entire global financial community.
Marko's Take
If you're wondering about the legality of the Personal Income Tax, our latest video blog will be posted in the next several days covering this complex topic as we head into tax season. To view our current YouTube videos, you can visit them here http://www.youtube.com/markostaketv.
Thursday, March 25, 2010
Soverign Debt Redux: Spill-Over Affecting Healthy Countries
Lately, we've observed the number of countries in trouble and whose sovereign debt has been both under scrutiny and appears to be signalling a global domino effect (http://markostake.blogspot.com/2010/03/greek-crisis-threatening-global.html) and (http://markostake.blogspot.com/2010/03/more-euro-zone-problems-whos-next.html).
Greece and Portugal have been front-and center in the news, rattling investors on both sides of the pond, but now another country is now gotten in the mix - China (http://markostake.blogspot.com/2010/03/non-bull-in-china-shop.html). Clearly, China is now recognizing that the Euro-Zone problems could affect the tenuous Chinese economy.
Growing concerns about spreading sovereign debt issues got China's attention. Until recently, China had remained fairly mum on the issue. Yesterday, a senior Chinese central banker warned that the Greek crisis was just the beginning.
“We don’t see decisive actions telling the market we can solve this,” Zhu Min, a deputy governor of the People’s Bank of China, was reported as saying. One has to wonder, how China will react to this crisis.
His comments caused the Euro to dip to a new 10-month low versus the dollar, and encapsulated a growing worry among a growing group of investors that high levels of government indebtedness is one of the main risks facing the global economy.
Of immediate concern is the Euro-Zone. A two-day summit of European leaders convenes today and investors need to hear that they have been able to knit together a safety net for Greece, which has had trouble rolling over the €20bn of debt maturing over the next couple of months.
But there is a potentially a more important issue emerging.
The poor reception given to the auction of $42 billion of US 5-year notes on Wednesday points to reluctance among buyers of US government debt. If this continues, yields will rise, but not for the hope-for reason – economic recovery. Instead, it will signal a undigestable supply and lack of demand. This could jeopardize the apparent economic recovery and adversely affect asset markets - particularly equity markets hard.
Moody's investor service, on Monday said that the world's largest AAA rated issuers: the U.S., Great Britain, Germany and Spain, were all in danger of losing their blue chip status.
Meanwhile the Greek crisis continues in limbo and further raises the prospect that this situation will spread to a global financial crisis. Yet, no definitive solution appears imminent.
Disturbing is the lack of consensus of how to address the issue. All potentially affected countries agree as to the magnitude of the problem, but the proposed solutions have absolutely no consensus and have created divisions among the affected countries. In the case of Germany, domestic controversy and oppostion to jeopardizing Germany's solid financial status have led to heated internal politcal debate.
The only positive note is that troubled Dubai appears to be making progess on its debt issue thanks to commitments from Abu Dhabi
(http://www.ft.com/cms/s/0/d74e16b8-37e3-11df-9e8e-00144feabdc0.html).
Despite the good news from the Dubai situation, more cracks are appearing in the global dam than are being plugged.
Marko's Take
Please visit our new YouTube channel at http://www.youtube.com/markostaketv. Our new piece on the legality of the personal income tax will posted within the next several days, followed every week or so by a series of new videos primarily covering more political issues and world events.
Greece and Portugal have been front-and center in the news, rattling investors on both sides of the pond, but now another country is now gotten in the mix - China (http://markostake.blogspot.com/2010/03/non-bull-in-china-shop.html). Clearly, China is now recognizing that the Euro-Zone problems could affect the tenuous Chinese economy.
Growing concerns about spreading sovereign debt issues got China's attention. Until recently, China had remained fairly mum on the issue. Yesterday, a senior Chinese central banker warned that the Greek crisis was just the beginning.
“We don’t see decisive actions telling the market we can solve this,” Zhu Min, a deputy governor of the People’s Bank of China, was reported as saying. One has to wonder, how China will react to this crisis.
His comments caused the Euro to dip to a new 10-month low versus the dollar, and encapsulated a growing worry among a growing group of investors that high levels of government indebtedness is one of the main risks facing the global economy.
Of immediate concern is the Euro-Zone. A two-day summit of European leaders convenes today and investors need to hear that they have been able to knit together a safety net for Greece, which has had trouble rolling over the €20bn of debt maturing over the next couple of months.
But there is a potentially a more important issue emerging.
The poor reception given to the auction of $42 billion of US 5-year notes on Wednesday points to reluctance among buyers of US government debt. If this continues, yields will rise, but not for the hope-for reason – economic recovery. Instead, it will signal a undigestable supply and lack of demand. This could jeopardize the apparent economic recovery and adversely affect asset markets - particularly equity markets hard.
Moody's investor service, on Monday said that the world's largest AAA rated issuers: the U.S., Great Britain, Germany and Spain, were all in danger of losing their blue chip status.
Meanwhile the Greek crisis continues in limbo and further raises the prospect that this situation will spread to a global financial crisis. Yet, no definitive solution appears imminent.
Disturbing is the lack of consensus of how to address the issue. All potentially affected countries agree as to the magnitude of the problem, but the proposed solutions have absolutely no consensus and have created divisions among the affected countries. In the case of Germany, domestic controversy and oppostion to jeopardizing Germany's solid financial status have led to heated internal politcal debate.
The only positive note is that troubled Dubai appears to be making progess on its debt issue thanks to commitments from Abu Dhabi
(http://www.ft.com/cms/s/0/d74e16b8-37e3-11df-9e8e-00144feabdc0.html).
Despite the good news from the Dubai situation, more cracks are appearing in the global dam than are being plugged.
Marko's Take
Please visit our new YouTube channel at http://www.youtube.com/markostaketv. Our new piece on the legality of the personal income tax will posted within the next several days, followed every week or so by a series of new videos primarily covering more political issues and world events.
Wednesday, March 24, 2010
More Euro-Zone Problems: Who's Next?
Yesterday, we discussed the acute and growing problems in Greece (http://markostake.blogspot.com/2010/03/greek-crisis-threatening-global.html). Sadly, the problems in the Euro-Zone are showing signs of spreading.
Portugal's sovereign debt was just downgraded. Sentiment soured towards the Euro after rating agency Fitch downgraded Portugal’s credit rating to AA- from AA. Fitch cited “significant budgetary underperformance in 2009” and “structural weaknesses”.
Ahead of the announcement, the Euro was already under pressure as hopes faded that this week’s two-day European Union summit, which starts on Thursday, would result in a concrete pledge of financial support for Greece.
Germany said for the first time, that it would consider financial support for Greece, but pegged its support to 3 conditions. First: Greece would have to explore any alternative options to attempt to gain access to the credit markets. Second: the International Monetary Fund must be a significant participant to the rescue, and Third: any potential aid package must be accompanied by additional means of verifying strict compliance.
The growing uncertainty has raised speculation of a temporary Greek exit from the euro-zone to address the currency issue, which would put further pressure on the single currency.
In Great Britain, banks were told to expect “payback time”, as Alistair Darling, Chancellor of the Exchequer, put the finishing touches to a budget that intends to propose new bank taxes and force them to improve the way they deal with customers and small businesses.
The Chancellor’s pre-election budget on Wednesday will employ tactics to force the banks to repay society for the damage inflicted on the economy over the past two years. Lord Myners, City Minister, set the tone on Tuesday when he said: “The taxpayer rescued the banking system 18 months ago. The time now is for payback.”
Treasury officials say they no longer “trust the banks as much” to deliver on promises to voluntarily improve their level of service and that the budget marks an attempt by Mr Darling to treat them more like a utility.
He is expected to announce measures to improve service to small enterprises, amid a myriad of complaints about both the onerous rate of charges and difficulties in obtaining credit. Business organizations are confident the budget will include a mechanism allowing entrepreneurs to challenge adverse lending decisions, or rises in interest rates.
The inter-connectivity of the global financial system makes dealing with individual country's interests quite problematic, as the result of the spill-over into other countries. The most frightening aspect of the situation, BY FAR, is that the number of problem countries grows as the proportion of "healthy" countries countinues to shrink.
Marko's Take
Please visit us on YouTube at http://www.youtube.com/markostaketv. We will have our next episode on the legality of the Personal Income Tax posted within the next several days.
Portugal's sovereign debt was just downgraded. Sentiment soured towards the Euro after rating agency Fitch downgraded Portugal’s credit rating to AA- from AA. Fitch cited “significant budgetary underperformance in 2009” and “structural weaknesses”.
Ahead of the announcement, the Euro was already under pressure as hopes faded that this week’s two-day European Union summit, which starts on Thursday, would result in a concrete pledge of financial support for Greece.
Germany said for the first time, that it would consider financial support for Greece, but pegged its support to 3 conditions. First: Greece would have to explore any alternative options to attempt to gain access to the credit markets. Second: the International Monetary Fund must be a significant participant to the rescue, and Third: any potential aid package must be accompanied by additional means of verifying strict compliance.
The growing uncertainty has raised speculation of a temporary Greek exit from the euro-zone to address the currency issue, which would put further pressure on the single currency.
In Great Britain, banks were told to expect “payback time”, as Alistair Darling, Chancellor of the Exchequer, put the finishing touches to a budget that intends to propose new bank taxes and force them to improve the way they deal with customers and small businesses.
The Chancellor’s pre-election budget on Wednesday will employ tactics to force the banks to repay society for the damage inflicted on the economy over the past two years. Lord Myners, City Minister, set the tone on Tuesday when he said: “The taxpayer rescued the banking system 18 months ago. The time now is for payback.”
Treasury officials say they no longer “trust the banks as much” to deliver on promises to voluntarily improve their level of service and that the budget marks an attempt by Mr Darling to treat them more like a utility.
He is expected to announce measures to improve service to small enterprises, amid a myriad of complaints about both the onerous rate of charges and difficulties in obtaining credit. Business organizations are confident the budget will include a mechanism allowing entrepreneurs to challenge adverse lending decisions, or rises in interest rates.
The inter-connectivity of the global financial system makes dealing with individual country's interests quite problematic, as the result of the spill-over into other countries. The most frightening aspect of the situation, BY FAR, is that the number of problem countries grows as the proportion of "healthy" countries countinues to shrink.
Marko's Take
Please visit us on YouTube at http://www.youtube.com/markostaketv. We will have our next episode on the legality of the Personal Income Tax posted within the next several days.
Tuesday, March 23, 2010
Escalating Greek Crisis Threatening Global Financial System
The crisis in Greece is getting serious. It began as a problem with the fiscal credibility of one euro-zone state, but has exposed political and financial fault lines running through the entire European Union. Politicians are becoming increasingly divided on either side of the Greece/Germany debate, increasing the risks that Greece becomes a big problem for the global financial system.
The seriousness of the crisis is somewhat reflected in Greek bond yields — which rose recently to close to 6.5%, for 10 year-maturities. German Bunds are now at 3.06% - their lowest yield in around a year and close to the low of 2.9% hit in the depths of the financial crisis. This reflects 3 separate forces at work: a flight-to-German safety trade, a preference for German fiscal prudence and fears over the possible spill-over damage the Greek crisis could inflict on the euro-zone economy and financial system.
Another sign of the escalation of concern is the response of European Central Bank (ECB) President Jean-Claude Trichet, who has softened the ECB's hard line on Greece and switched to playing diplomat. He said Greece could receive loans from other governments if the euro-zone was threatened.
He further suggested the ECB might yet reconsider its collateral rules to allow Greek government debt to remain eligible beyond the end of this year if further ratings downgrades occur.
Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, warned that the Greek crisis could affect the U.S. economy, resulting from a broad shock to financial markets that could impact the banking system or lead investors to retreat from sovereign debt.
The Greek economy is in shambles and rapidly deteriorating. Greek unemployment vaulted to an 8-year high of 10.3% in the fourth quarter, up sharply from a 9.3% rate in the third, the National Statistics Service said Thursday.
The data showed unemployment rose across all age groups, impacting young workers between the ages of 15 and 29, who have the highest joblessness with a rate of 20.4% in the fourth quarter, up from 18.5% in the third. Unemployment for 30 to 44-year olds rose to 9.3% from 8.3%, while for the 45 to 64-year-old age group, joblessness rose to 6.3% from 5.7%.
Germany's potential role in the escalating Greek crisis has led to consternation domestically. Originally, it appeared that Germany would offer some sort of "bail out" program. However, in discusssions among euro-zone members, the German government has been thwarted by its concern that plans to help Greece would violate a “no bail-out” clause in EU rules on the euro and expose it to legal challenges before Germany’s highest court, officials said.
Instead, Germany is leaning towards involving the International Monetary Fund should Greece call for help to stem its budget crisis, a move Berlin hopes would help avoid potential constitutional court objections to a German bail-out.
The situation remains fluid in any event and one that has "game-changing" potential. The longer the situation festers, the greater the threat to the U.S. and world financial system.
Marko's Take
Please visit our YouTube channel at http://www.youtube.com/markostaketv.
The seriousness of the crisis is somewhat reflected in Greek bond yields — which rose recently to close to 6.5%, for 10 year-maturities. German Bunds are now at 3.06% - their lowest yield in around a year and close to the low of 2.9% hit in the depths of the financial crisis. This reflects 3 separate forces at work: a flight-to-German safety trade, a preference for German fiscal prudence and fears over the possible spill-over damage the Greek crisis could inflict on the euro-zone economy and financial system.
Another sign of the escalation of concern is the response of European Central Bank (ECB) President Jean-Claude Trichet, who has softened the ECB's hard line on Greece and switched to playing diplomat. He said Greece could receive loans from other governments if the euro-zone was threatened.
He further suggested the ECB might yet reconsider its collateral rules to allow Greek government debt to remain eligible beyond the end of this year if further ratings downgrades occur.
Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, warned that the Greek crisis could affect the U.S. economy, resulting from a broad shock to financial markets that could impact the banking system or lead investors to retreat from sovereign debt.
The Greek economy is in shambles and rapidly deteriorating. Greek unemployment vaulted to an 8-year high of 10.3% in the fourth quarter, up sharply from a 9.3% rate in the third, the National Statistics Service said Thursday.
The data showed unemployment rose across all age groups, impacting young workers between the ages of 15 and 29, who have the highest joblessness with a rate of 20.4% in the fourth quarter, up from 18.5% in the third. Unemployment for 30 to 44-year olds rose to 9.3% from 8.3%, while for the 45 to 64-year-old age group, joblessness rose to 6.3% from 5.7%.
Germany's potential role in the escalating Greek crisis has led to consternation domestically. Originally, it appeared that Germany would offer some sort of "bail out" program. However, in discusssions among euro-zone members, the German government has been thwarted by its concern that plans to help Greece would violate a “no bail-out” clause in EU rules on the euro and expose it to legal challenges before Germany’s highest court, officials said.
Instead, Germany is leaning towards involving the International Monetary Fund should Greece call for help to stem its budget crisis, a move Berlin hopes would help avoid potential constitutional court objections to a German bail-out.
The situation remains fluid in any event and one that has "game-changing" potential. The longer the situation festers, the greater the threat to the U.S. and world financial system.
Marko's Take
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Tuesday, February 9, 2010
Sovereign Debt Crisis Threatens To Take Down World Economy
First we had countries which fell under the acronym "BRIC" - Brazil, Russia, India and China. These countries were believed to be the emerging world powerhouses. Now, we have a new one: "PIGS", or Portugal, Italy, Greece and Spain. In the case of PIGS, the acronym is not in the least flattering. Rather, it refers to a group of countries in such financial trouble that their sovereign debt is threatening to pull down the European Union (EU) and possibly the global economy altogether!
The sign that major stresses can be felt is being witnessed in both the bond markets and the countries'
"Credit Default Swaps" (CDS), which price the "insurance" against default. Recently, Spain's and Italy's bonds have carried a CDS of 1.65%, Italy's have risen above 1.5%, while Greece's have expanded to a frightening 4%. To put things in perspective, the United States, no longer considered a great credit, has an active CDS market priced at less than 0.5%! Ireland, not officially a PIGS country, but guilty by association, has its CDS in the 1.5% range.
About six weeks ago, I wrote a piece on Soverien Debt (http://markostake.blogspot.com/2009/12/investing-in-soverign-debt-much-riskier.html. Reading this might provide some excellent background for anyone unfamiliar with the issues.
According to a recent article in the Wall St. Journal, the global economic downturn and extensive government spending to fight it, have led to major fiscal problems in Europe, especially for less-dynamic economies like Greece, Portugal, Ireland and Spain. Such countries took advantage of their membership in the 16-nation euro-bloc during the boom by borrowing at unusually low interest rates. But now, investors are worried about how they will reduce yawning budget deficits that exceed 12% of their economic output in the case of Greece and Ireland.
European policy makers are trying to pressure countries like Greece into taking stronger action to fix their finances.
The potential damage from any sovereign default in the EU will affect the entire region which shares a currency but NOT fiscal policies. Now there is talk that Greece is looking to be "bailed out". Wonder where I've heard the words "bailed" and "out" before?
The sovereign debt isssue is another reason that 2010 is shaping up to be one nasty year!
Questions? Disagree? Agree? TAKE ME ON!
Marko's Take
The sign that major stresses can be felt is being witnessed in both the bond markets and the countries'
"Credit Default Swaps" (CDS), which price the "insurance" against default. Recently, Spain's and Italy's bonds have carried a CDS of 1.65%, Italy's have risen above 1.5%, while Greece's have expanded to a frightening 4%. To put things in perspective, the United States, no longer considered a great credit, has an active CDS market priced at less than 0.5%! Ireland, not officially a PIGS country, but guilty by association, has its CDS in the 1.5% range.
About six weeks ago, I wrote a piece on Soverien Debt (http://markostake.blogspot.com/2009/12/investing-in-soverign-debt-much-riskier.html. Reading this might provide some excellent background for anyone unfamiliar with the issues.
According to a recent article in the Wall St. Journal, the global economic downturn and extensive government spending to fight it, have led to major fiscal problems in Europe, especially for less-dynamic economies like Greece, Portugal, Ireland and Spain. Such countries took advantage of their membership in the 16-nation euro-bloc during the boom by borrowing at unusually low interest rates. But now, investors are worried about how they will reduce yawning budget deficits that exceed 12% of their economic output in the case of Greece and Ireland.
European policy makers are trying to pressure countries like Greece into taking stronger action to fix their finances.
The potential damage from any sovereign default in the EU will affect the entire region which shares a currency but NOT fiscal policies. Now there is talk that Greece is looking to be "bailed out". Wonder where I've heard the words "bailed" and "out" before?
The sovereign debt isssue is another reason that 2010 is shaping up to be one nasty year!
Questions? Disagree? Agree? TAKE ME ON!
Marko's Take
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