portugal | Andy Roberts

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Zapatero’s socialists defeated by People’s party in regional elections

http://distributedresearch.net/blog/2011/05/23/zapateros-socialists-defeated-by-peoples-party-in-regional-elections

Results seen as protest vote against Spain’s José Luis Rodríguez Zapatero’s handling of the Spanish economy since 2008This article titled “Zapatero’s socialists defeated by People’s party in regional elections” was written by Giles Tremlett in Madrid, for The Guardian on Monday 23rd May 2011 17.28 UTCThe socialist party of Spanish prime minister José Luis Rodríguez Zapatero is licking its wounds after defeat by the conservative opposition People’s party (PP) in municipal and regional elections.In what was widely seen as a protest vote against Zapatero himself and his handling of Spain’s economy, his party lost control of key city halls in places such as Barcelona and Seville while the PP took control of most of the country’s powerful regional governments.The central Castilla La Mancha region, Aragon and the Balearic islands all ejected socialist administrations.“We are aware of the situation that had distanced people from our party and caused them to criticise us with their vote or abstention,” party spokesman José Blanco said.The socialist drubbing came just 10 months before a general election and appeared to clear the way for PP leader Mariano Rajoy to take possession of the prime minister’s Moncloa Palace residence on his third attempt.The voting coincided with the eruption of numerous popular protests against established politics across Spain, with demonstrators camping out in Madrid’s Puerta del Sol and in dozens of other cities. A backdrop of 21% unemployment and sluggish growth has spread pessimism throughout Spain as the country struggles to find its feet after the 2008 crash.The socialists lost one in five voters on Sunday, compared to the municipal elections of 2007. Not all those votes were picked up by other mainstream parties, however, and the number of spoilt ballots doubled. But overall turnout was a high 66%.Zapatero is blamed by some for mismanaging a debt crisis that saw Spain on the edge of disaster last year. Others dislike the austerity measures he has since imposed in order to avoid a Portuguese- or Greek-style debacle in Spain.His popularity has plunged since a U-turn last year saw him bring in a strict deficit-cutting plan, which he has pledged to stick to, along with labour and pensions reforms.Markets reacted nervously to the poll result on Monday, pushing up the price of Spanish bonds and pushing down Spanish share prices.The PP urged Zapatero to call a snap general election. “Zapatero and the whole socialist party must reflect on what has happened. Spain cannot waste another year like this,” said the party’s general secretary María Dolores de Cospedal.The one socialist leader to have survived Sunday’s debacle, the head of the Extramadura regional government Guillermo Fernández, also suggested that an early general election might be considered.The socialists must first choose a new leader to take them into those elections, with deputy prime minister Alfredo Pérez Rubalcaba and defence minister Carme Chacón as favourites.Party officials said that a timetable for electing the new leader would be set on Saturday.With a general election due in Portugal on 5 June, and with opinion polls showing that socialist prime minister José Sócrates will struggle to hang on to power, the rolling back of leftwing politics that has already taken place in northern Europe now appears to have moved south. guardian.co.uk © Guardian News & Media Limited 2010Published via the Guardian News Feed plugin for WordPress.Thanks for subscribing to Andy Roberts blogZapatero’s socialists defeated by People’s party in regional electionsRelated posts:Blair to go, now give back the Labour PartyCatalan independence boost after Barcelona voteZapatero says Spain safe from bailout
May 23 2011, 12:35pm | Comments »
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Portuguese learn price of €78bn debt bailout

http://distributedresearch.net/blog/2011/05/04/portuguese-learn-price-of-e78bn-debt-bailout

Health and education spending in Portugal to be cut by €745m, state pensions reduced and major building projects axed

This article titled “Portuguese learn price of €78bn debt bailout” was written by Giles Tremlett, for The Guardian on Wednesday 4th May 2011 15.20 UTC

Portugal woke up to the price of its €78bn (£70bn) bailout on Wednesday as new airports and high-speed rail lines were sacrificed in a package of austerity measures and the government pledged to freeze pensions and shrink the civil service. Lisbon’s new international airport, already on hold, and the building of a high-speed rail link between Lisbon and Oporto will now be put back until after 2013, according to state news agency Lusa. Health and education spending will be cut by €745m, civil service pay and pensions will be frozen, and people on state pensions above €1,500 a month will have them reduced. Civil service staffing is to be squeezed by 1% a year in central government, while regional administrations and town halls will be told to shed 2% of their employees annually. Portugal’s banks will take up to €12bn of the bailout funds to rebuild their capital ratios, according to reports. The banks would have to raise their core tier one capital ratio – a gauge of higher quality capital that mainly comprises equity and retained earnings – to 9% at the end of this year and to 10% by the end of 2012, Reuters said. The country will also carry out a fire sale of the nationalised Banco Português de Negócios (BPN) bank. “The authorities are launching a process to sell BPN on an accelerated schedule and without a minimum price,” according to a memorandum of understanding seen by the Guardian, which added that the sale should be finished in July. Portugal is expected to reduce public spending by 3.4% of its GDP this year and raise an extra 1.7% of GDP by raising taxes on cars, tobacco and electricity and getting rid of income and corporation tax loopholes. A detailed investigation of public-private partnerships (PPPs), which have been used for building hospitals, roads and rail lines, will be carried out to see if they are hiding extra government debt. New PPP projects will be suspended. José Sócrates, Portugal’s caretaker prime minister, announced the areas that would remain untouched when he explained the bailout during a television address to the nation on Tuesday night. These included pensions for the worse-off and the retirement age. But he failed to reveal what austerity measures came with the bailout package, beyond saying they would be similar to those rejected by parliament in March. The March defeat brought down his minority socialist government and a snap election was called for 5 June. Polls show the opposition Social Democrat Party (PSD), which rejected the March austerity package, may win that vote. Representatives of the International Monetary Fund, the European Union and the European Central Bank met Social Democrat leaders on Wednesday morning to seek their backing for the plan. “The PSD will give its opinion on what it has read and heard late today or early tomorrow,” said Carlos Moedas, the party’s economics advisor, after the meeting. Social Democrat leaders had already indicated they might change elements of any bailout-related austerity package if they were elected to government, although always with the aim of hitting this year’s target of reducing the budget deficit to 5.9% of GDP. The IMF said: “We have said from the start that it is important that any agreement have multi-party support and we shall continue in our efforts with opposition parties to show that this is the case.” Portugal managed to raise €1.12bn euros in three-month treasury bills today with demand almost doubling the offer, but investors insisted on a 4.65% interest rate – up from 4.05% two weeks ago. Jonathan Loynes, chief European economist at Capital Economics in London, said the bailout might not be enough to stave off restructuring: “It won’t put an end to speculation that – along with Greece and perhaps others – it will sooner or later need to undertake some form of debt restructuring.”

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May 4 2011, 10:30am | Comments »
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Spain staves off bailout – for now

http://distributedresearch.net/blog/2011/04/08/spain-staves-off-bailout-for-now

As its neighbour Portugal succumbs to a bailout, Spain insists that it won’t follow despite holding €75bn of Portuguese debt

This article titled “Spain staves off bailout – for now” was written by Giles Tremlett, for The Guardian on Thursday 7th April 2011 19.43 UTC Spanish store fronts, jostling for space along a single block in Lisbon’s João II street, are a sign of just how deeply Spain – which accounts for a third of all Portuguese debt held in foreign banks – is linked to its neighbour. Spain’s two global banks, Santander and BBVA, both have branches on this block, along with another bank, a hotel, a travel agency, a dentistry chain, a pizza restaurant and a supermarket – all of them Spanish businesses. Some 8.5% of Spain’s exports are sent across its western border, meaning that Portuguese austerity measures and an expected return to recession will be also be felt there. But Spanish officials who have watched their bond yields improve even as Portugal headed towards a bailout insist there is no danger of it becoming the next eurozone domino to fall. “(The risk of contagion) is absolutely ruled out … it has been some time since the markets have known that our economy is much more competitive,” Elena Salgado, the finance minister, told the SER radio station. Spanish banks hold around €75bn (£65bn) of Portuguese debt, though only about 30% of this is public debt. Spain had about €25bn in foreign direct investment in Portugal in 2009. The prime minister, José Luis Rodríguez Zapatero, who has said he will not stand for a third term next year, told the Guardian last week that his socialist government would continue to meet its deficit targets. He said it would also keep introducing reforms to boost the current timid rate of growth and start bringing down a startling 20% unemployment rate. Salgado said on Wednesday that 2011 growth would be 1.3%. Spain’s economy is bigger than those of Portugal, Ireland and Greece put together. A bailout there could have disastrous consequences for the eurozone. “Portugal’s bailout request puts the likes of Spain under the spotlight, but we are of the opinion that Spain will not follow due to its improving fiscal situation and recovering economy,” Credit Agricole analysts said in a note to clients .

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April 8 2011, 5:33am | Comments »
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Portugal admits it needs EU bailout

http://distributedresearch.net/blog/2011/04/07/portugal-admits-it-needs-eu-bailout

Finance minister Fernando Teixeira dos Santos says Portugal has ‘to resort to the financing mechanisms’ of the EU. That means a bailout.

This article titled “Portugal admits it needs EU bailout” was written by Larry Elliott, Heather Stewart and Simon Goodley, for The Guardian on Wednesday 6th April 2011 19.36 UTC Portugal admitted tonight that it will need aid from the European Union to overcome its financial troubles, as the country’s crisis intensified. Fernando Teixeira dos Santos, the finance minister, said: “In this difficult situation, which could have been avoided, I understand that it is necessary to resort to the financing mechanisms available within the European framework.” It was not clear from the comment whether he was referring to a short-term loan until the country’s 5 June snap general election or a fully-fledged bailout such as the ones received by Greece and Ireland – and which markets widely expect Lisbon to need next. The comments came as fears grew of a fresh debt crisis for weak countries on the fringes of the single currency zone as the European Central Bank prepared to start raising interest rates from the emergency level plumbed during the financial crisis. The euro rose on the foreign exchanges today in expectation that the European Central Bank would raise borrowing costs from 1% and signal further policy tightening in the months ahead. But City economists warned that the move would add to debt servicing costs and prove more problematic for countries such as Portugal and Ireland than for the core single country nations of Germany and France. Ben May, of Capital Economics, said: “If interest rates were to rise in line with market expectations, their impact would be greatest in the periphery and may prompt a further escalation of the region’s fiscal crisis. “Higher official interest rates will not only lower economic growth in the periphery, but will also prompt the average interest rate that governments pay on their debts to rise. Other things equal, then, higher interest rates will increase the chance of peripheral government debt spiralling out of control.” Along with other central banks, the ECB slashed interest rates during the financial crisis in an attempt to pull Europe out of recession, but it has responded to rising inflation in recent months with clear signals that borrowing costs will rise. The euro’s strength coincided with a rise in the price of gold to $1,454.84 an ounce. Marchel Alexandrovich, of Jeffries International, said a 1% increase in ECB rates would mean that mortgage debt interest payments of euro area households would rise by around 7% on average, but there would be a 30% jump in debt services payments for households in Portugal and Finland, a 15% increase in Ireland and around a 10% rise in Spain and Italy. “In aggregate, debt interest payments for the euro area households and non-financial corporations would rise by around 0.3% of GDP if ECB rates are one percentage point higher,” he said. “But Germany and France would see a rise of just around 0.1% of GDP, while Portugal, Spain and Ireland would see increases equivalent to 0.8% of GDP. “The countries which least welcome higher interest rates on economic fundamentals are likely to be the ones most affected by them. One more reason why the ECB would be wise to tread very carefully in the months ahead.” Several of Portugal’s banks have been calling on the government to accept help from its eurozone partners, warning that they can no longer continue to buy up Portuguese debt. Lisbon needs to find almost €5bn in repayments this month and another €27bn in June. The rising interest rate on Portuguese borrowing has added to the sense of crisis in the eurozone, amid reports that Greece is under pressure from the International Monetary Fund to default on its borrowing. The Irish government is understood to be concerned about weaker-than-expected tax revenues and the vulnerability of its banking sector. An informal meeting of European finance ministers is planned for Friday

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April 7 2011, 2:35am | Comments »
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Zapatero says Spain safe from bailout

http://distributedresearch.net/blog/2011/04/02/zapatero-says-spain-safe-from-bailout

‘Socialist‘ prime minister Zapatero of Spain defends the deficit reduction programme as unemployment rate remains at 20%

This article titled “Zapatero says Spain safe from bailout” was written by Giles Tremlett in Madrid, for The Guardian on Friday 1st April 2011 20.00 UTC Spain’s beleaguered economy is out of the woods and will not need a Greek or Irish-style bailout despite the risk of contagion from troubled neighbour Portugal, according to its Socialist prime minister, José Luis Rodríguez Zapatero. In an exclusive interview with the partner publications from the Guardian’s New Europe project, the continent’s most powerful leftwing prime minister insisted that reforms and an austerity programme designed to reverse a runaway deficit were bearing fruit. He refused to be drawn on his own plans, amid rumours that he will announce tomorrow that he will not stand for a third term at elections due early next year. His Socialist party currently trails the opposition conservative People’s party by 16 points in opinion polls. The comments, from a prime minister whom Spaniards describe as “anthropologically optimistic”, came as market pressure on the country’s sovereign debt showed signs of relaxing, despite growing problems in both Portugal and Ireland. “We now have economic growth. The debt risk has stabilised and is out of danger. And now we are close to creating jobs,” Zapatero said. Zapatero sees no conflict between being a deficit warrior and a socialist, but points to key differences between his cuts package and that of Britain’s coalition government. “There is a deep, deep difference between what our government has done on education during the crisis and what Cameron’s government has done,” he said, pointing to education spending that has risen to 15% of Spain’s GDP for the first time. “The fundamental difference between right and left is the capacity to redistribute spending and remove obstacles to equal opportunities,” he insisted. “We haven’t reduced spending on health. We’ve increased spending on unemployment. We’ve maintained spending on social care of the dependent. Why do we do it? To maintain social cohesion.” Instead Spain’s government had brought down its deficit by, among other things, cutting civil service pay and freezing pensions. Zapatero said that, having met last year’s deficit reduction target, Spain would also hit this year’s 6% goal. “Our priority measure is the strict meeting of the deficit target,” he said. Although he claimed jobs would be created soon, the timid growth that some critics blame precisely on spending cuts has had no impact on a startling 20% unemployment rate. “My main anguish is about those people who lose benefit payments but have trouble finding work,” he said. Reforms in the pipeline should bring more flexible collective bargaining, improved competitiveness and a law to limit deficit spending, he said. “It’s true that some reforms mean cuts, but others are simply changes,” he said. “No project can call itself leftwing unless it commits to a competitive economy … we are going to renew Spain’s economic structure.” He warned Portugal that if it wanted to escape a bailout it had no option but to adopt the austerity package that its parliament rejected last week, bringing down José Sócrates’ Socialist government and triggering a June election. “Carrying out the Sócrates austerity plan presented to parliament is fundamental,” Zapatero said. His comments came even before Portugal admitted that its 2010 deficit was €3bn (£2.6bn) higher than originally estimated. Zapatero, speaking before Ireland revealed that it needed a further €24bn to deal with its banks, said he favoured more aid to Greece and Ireland. “We should be ready to increase the aid if they need it,” he said. Like most Spanish politicians, he is an avowed pro-European and saw greater economic integration within the EU as an unexpected but welcome side-effect of the crisis. “Economic integration is being speeded up. That much is clear,” he said. “Integration in politics and security is going more slowly, but it will come. It may take five or 10 years, but the process is inevitable.” He admits that, like everyone else, he would have liked Europe to react faster to the economic crisis. “But it is obvious that, amongst democratic countries, there is something called a decision-making process,” he said. “The Spanish government is lucky because parliament is always very pro-European … but there are other parliaments in Europe that debate every last cent.” Even the Libya crisis was an example of Europe in action, he said. “Who brought a historic resolution to the [UN] security council to intervene in Libya? Two European countries: France and Britain,” he said. “It is Europe that has taken the lead.” The man who pulled Spain’s troops out of Iraq when first elected in 2004 said the UN resolution was a historic step for human rights. “It is the first time we have had a resolution based on a responsibility to protect people,” he said. “A huge amount of care and restraint is being exercised,” he said of the campaign. “We have not had that thing that is so heartrending – and which discredits these operations – which is civilian victims.” But Zapatero, who has sent aircraft and warships to join the Libya campaign, insisted that military means should not be used to oust Gadaffi. “The use of arms is for protecting the population,” he said. “For regime change we have our political and economic strength.” Europe’s task did not end, there, he insisted. “The north of Africa and the Mediterranean as a whole are going to look towards the north. They will look to Europe, and Europe must not look away.” Wind power became Spain’s biggest energy source for the first time in March, but events in Japan have not changed Zapatero’s policy of using nuclear energy, while refusing to build extra capacity. “When nuclear power stations come to the end of their lifespan they will be closed,” he said. “We don’t propose building new power stations and must guarantee the production of alternative sources to cover the closure of every nuclear power station.”

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April 2 2011, 11:31am | Comments »
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Ireland forced into new £21bn bailout by debt crisis

http://distributedresearch.net/blog/2011/04/01/ireland-forced-into-new-21bn-bailout-by-debt-crisis

Irish finance minister Michael Noonan said that Ireland had been left with an ‘appalling legacy’ as a result of the banking crisis.

This article titled “Ireland forced into new £21bn bailout by debt crisis” was written by Larry Elliott and Jill Treanor, for The Guardian on Thursday 31st March 2011 20.17 UTC Europe’s debt crisis deepened on Thursday night as Ireland was forced into another €24bn (£21bn) rescue of its banking system and jittery financial markets pushed Portugal closer to a bailout. In a furious attack on the previous government, the Irish finance minister Michael Noonan said the country had been left with “an appalling legacy: a legacy of debt, of unemployment, of emigration, of falling living standards and of low morale” as a result of the banking crisis. After stress tests to assess the vulnerability of the banks to a drastic worsening of the economy, Noonan announced that the government would take a majority stake in all the major lenders. These are to be radically reduced in size and focused on just two players. Ireland’s banks have been crippled by the bursting of a house price and commercial property bubble, created when they took advantage of the country’s membership of the single currency to lend recklessly on low interest rates. The collapse caused an economic crisis that has seen output shrink for three years in a row. “We are now in the third year of the banking crisis. The previous government failed to act. They ducked and dived and procrastinated as they lurched from one crisis to the next. They went through periods of denial and periods of self justification. They paved the road to disaster with good intentions,” Noonan said. “They never fixed the broken banks, however.” Ireland’s central bank governor, Patrick Honohan, said the country was saddled with “one of the costliest banking crises in history”. The total bill has now reached €70bn – equal to €17,000 for each citizen. Analysts said that while Ireland’s latest bank bailout had provided the country with breathing space, time was running out for Portugal, where the government admitted that it would miss its target for deficit reduction in 2010 and revised up its budget deficit figure from 7% of GDP to 8.6%. The poor figures triggered a fresh sell-off of Portuguese bonds and analysts said it would now be cheaper for the country to borrow from the International Monetary Fund and EU, as Ireland is doing, rather than access the international markets. Ireland pays 6% interest on its seven-year loans while bond investors want to charge Portugal 9% to borrow for just five years. As a result of the Irish and Greek bailouts, EU partners have now set up the European financial stability facility (EFSF) as a long-term provider of funds for troubled members of the eurozone. “The key question is when will Portugal need to access the EFSF because it has run out of money. Portugal faces two bond redemptions, one on 15 April (€4.3bn) and one on 15 June (€4.9bn). This week, a government official said that Portugal had sufficient reserves to cover both of these. It is hard to see how this can be the case,” said Emilie Gay from the research consultants Capital Economics. However, Portugal’s finance minister, Teixeira dos Santos, said: “The government is not irresponsible and will guarantee that there is the necessary financing so the country can live up to its responsibilities and honour commitments to its creditors.” Lisbon said the change in its deficit figures was the result of an accounting change demanded by Europe’s statistics agency but bond markets feared it was an effort to deceive investors about the true picture in the past. An auction of €1.5bn of bonds has been scheduled for Friday and will be a test for the market. As a result of the announcement in Dublin, all the Irish banks are now likely to be state-owned. Two new universal banks are expected to be created from existing institutions – Bank of Ireland will remain while Allied Irish Banks and building society EBS are to be merged. “We will also ensure that they are fully recapitalised so that the world looks at these core banks with confidence and they in turn help instil confidence in our economy,” said Noonan. The extra bailout cash is within the funding from the EU/IMF support announced last year. Noonan blamed the crisis on the decision made in September 2008 by the former Fianna Fáil government to guarantee the banking sector, and particularly Anglo Irish Bank, during the international banking crisis.

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April 1 2011, 9:41am | Comments »
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Eurozone crisis: Why we’re all in this together, too

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Portugal‘s financial situation looks bleak – so can the eurozone muddle through yet again?

This article titled “Eurozone crisis: Why we’re all in this together, too” was written by Michael White, for guardian.co.uk on Friday 25th March 2011 12.19 UTC I see the eurozone’s sovereign debt crisis is safely off the front pages, so things must be getting serious. EU leaders, who have got their Nato knickers in a quite separate twist over Libya this week, are gathering in Brussels today to sort it out. Tin helmets on. It’s not primarily Britain’s problem, because Britain is not part of the eurozone. We have retained our own currency and our own central bank and are therefore free to make, and correct, our own mistakes, as 17 of our EU partners are not. Who kept us out of the eurozone, asked the veteran Tory fixer Tristram Garel-Jones, into whom I bumped at Westminster this week. “Gordon got that bit right,” said the clever new Labour MP in the conservation. “John Major, that underestimated man,” TG-J replied before popping outside the building for a fag. Fair dos – it was Major’s UK exemption, negotiated at Maastrict in December 1991, which left the option open for euro enthusiasts (as he then was) like Gordon Brown to exercise, except that he didn’t. Ed Balls talked him out of it, and Tony Blair’s enthusiasm clinched the Treasury veto. Not that Major will get much credit from assorted Tory airheads now jumping up and down, warning David Cameron that he mustn’t contribute a penny to the looming Portuguese bailout – “£300 for every family in Britain” as today’s Daily Mail puts it, as though the Lisbon bailiffs were knocking at the door like tinkers. The bailout will be £3.96bn, according to the eurosceptic (Rupert told them to be) Times, £6bn according to the Mail, though the paper’s City pages seem much calmer than the news pages – as usual. It’s a detail. In a crisis, Britain has commitments via the IMF and the European Stability Mechanism (ESM), which Alistair Darling signed on the last weekend of the Labour government and George Osborne would probably have signed had he taken over by then. But, as the BBC’s Robert Peston gently points out, it’s very indirect and the chances of losing any money via guarantees are remote, more so than the damage which would affect confidence in the wider EU economy – including ours – if Portugal defaulted on its debts, with or without a prior restructuring. Never mind. You can read here (under European summit) how Tory MPs like my old chum Bill Cash got over-excited in the Commons, denouncing the ESM as legally doubtful and urging Cameron to dig his heels in against more British financial support at today’s summit. As Ian Traynor reports, this week’s collapse of Portugal’s minority government after the opposition refused to back another austerity package leaves the EU without a government in Lisbon to negotiate with. As with Ireland last winter, the eurozone’s German paymasters (the French tagging along) want the Portuguese to seek a formal bailout for their debts for fear of “contagion” in the financial markets which could spread to much larger Spain or Italy. The cost of servicing Ireland’s 10-year debt rose again this week, to 10.1%, and Portugal’s is pushing 8% – a level at which it cannot realistically hope to grow its way to solvency. It’s like a mortgage in which the accumulated interest keeps enlarging the householder’s debt. Notwithstanding chancellor Osborne’s justified boast that his austerity package has kept ours closer to debt-free Germany’s at 3.6%, one of the soporific credit agencies, Moodys, warned him yesterday that the UK could lose its triple-A status if his growth predictions don’t come good. Few think they can. This is all grim stuff. Just as Greek voters rioted against their government’s enforced austerity and Irish voters kicked their government out after they agreed to underwrite their country’s grotesque banking debts, so the Portuguese are angrily resisting their doom. More austerity will be hard to bear and, as elsewhere, may not do much good anyway if they overwhelm hopes of resumed growth. Forty-eight hours after the UK coalition’s second budget reconfirmed a similar-sounding Plan A, and on the day the Guardian launches its own review of the cuts now descending on Britain’s public and third sector services, I know what you are thinking. But at least we are managing our own affairs. Because the debtor nations inside the eurozone are not the only ones cutting up rough. The creditors, not just those sober North German Protestants, but their Dutch neighbours, plus the French – and even the Finns – are finding that their voters are ill-disposed towards their profligate southern allies, who borrowed money they could not repay. Hopes of a “grand bargain”, whereby the new stability mechanism, due to come into force in 2013, will have a lot more money to shore up the edifice (€440bn instead of €250bn) remain in doubt. The Germans and Dutch want to restrict its capacity to buy bonds to buying them from ailing governments which must agree fresh austerity in return. And Finland’s normally-staid government has been hit by a surge of populist anti-euro rhetoric which threatens trouble at next month’s elections, and forced Helsinki, another triple-A rated state in creditworthiness, to block its increased contributions to the new stability mechanism. Meanwhile, Italy – whose respected central bank governor has kept the show on the road (he should be the next man to head the European central bank except the Germans won’t have a southerner) despite Silvio Berlusconi’s antics – is moving to block unpopular French takeovers of important Italian firms like Bulgari the jewellers, and the food company Parmalat. It’s what the French do, of course, but it’s very un-European. It’s not a currency issue but it is a nationalist one, explicitly protectionist and reflected in the currency battles. Britain has been allowed to devalue sterling by close to a quarter – thereby boosting exports – without triggering the protectionist charge which is levelled against the Chinese, who have been doing the same thing for years. We should be grateful, but we’re not. None of this is good for them, or good for any of us in our cold north Atlantic corner of an increasingly Pacific-orientated world. It’s no good saying “I told you so,” that it’s hard to imagine a single currency without a single state, at least for tax and spending purposes. But lots of people did say that (me included), and the German answer seems to be to say: “Ok, let’s construct a fiscal as well as monetary union.” There is logic to that position, but it won’t easily hold politically. The broken-backed Portuguese government, now facing a two-month general election campaign without a credible option, this week embraced even tougher cuts in return for a lower interest rate on its EU debts over a longer period. Ireland’s new Fine Gael-Labour government rejected similar terms because part of Berlin’s price would have been abandonment of the republic’s core economic strategy, the 12.5% rate of corporation tax which attracts inward investment so well. Irish voters have told all parties it is a red line for them but, to Germans, it is fiscal piracy. Osborne is offering a similar rate for Northern Ireland in returns for grant cuts elsewhere, a differential rate that will annoy the rest of corporate Britain, where the post-budget rate is still 26%. Tricky, isn’t it? Will the eurozone make sensible compromises it can sell to angry voters, north and south, ones not bound by ties of language or national culture? Will it fall apart? It shouldn’t. Portugal’s is a small economy, its debt problems less acute than those of Greece or Ireland, though its politics have been weak. But we should all hope it muddles through and support the process where we can, despite our own acute domestic problems. “Beggar my neighbour” policies are always tempting but rarely smart, because my neighbour does it back. By the way, which member of the G7 saw the largest rise in per capita income in the 20 years after Margaret Thatcher’s fall in 1990? Why, Britain did, according to new figures, by 36.5 % – just ahead of the US and Canada (32%), Germany (29.3%) and France (23.1%). Where did it go? Not fairly shared, I realise. Unsustainable? In part, yes. The coalition’s budget says the answer is austerity and supply side measures to boost growth. Here’s hoping.

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March 25 2011, 7:52am | Comments »
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Portugal teeters on brink of bailout

http://distributedresearch.net/blog/2011/03/24/portugal-teeters-on-brink-of-bailout

For Portugal, a bailout request is now seen as inevitable following the Portuguese prime minister’s resignation after his failure to push through another round of austerity measures

This article titled “Portugal teeters on brink of bailout” was written by Graeme Wearden, for guardian.co.uk on Thursday 24th March 2011 13.09 UTC City experts fear Portugal will be soon be forced to apply for a bailout package worth up to €70bn (£60bn), following the Lisbon government’s failure to push through its austerity measures on Wednesday. Portugal is teetering on the brink of becoming the third member of the eurozone to seek assistance from the EU – and as with Greece and Ireland the International Monetary Fund would probably also be involved. Prime minister José Sócrates’s resignation on Wednesday night has left the country in political limbo, and piled extra pressure on European leaders who are gathering at a summit in Brussels on Thursday. “The resignation of the Portuguese prime minister adds a political crisis to a fiscal crisis, and brings a bailout a step closer,” said Kevin Dunning at the Economist Intelligence Unit. Sócrates quit after opposition parties voted down his austerity measures. European commission president José Manuel Barroso quickly warned, though, that the country must stick to the latest reforms announced this month. Britain could be forced to contribute more than £3bn to a Portugal bailout package, according to the Open Europe thinktank. It claimed on Thursday that the UK’s share of any rescue package would be between €810m and €3.7bn, via the commission’s €440bn bailout fund. “Portugal will inevitably ask for a bailout,” said Open Europe’s Raoul Ruparel. “But the cases of Ireland and Greece clearly illustrate that the EU’s strategy – to throw good money after bad – is failing. Rather than simply taking a bailout, it would be better in the long run for Portugal to restructure its debt now,” Ruparel added. Sócrates had proposed a wide-ranging plan of tax rises and spending cuts, in an attempt to cut Portugal’s deficit and retain market confidence. The yields on Portuguese government debt has reached record highs, with the 10-year bond trading hitting 7.6% – widely seen as an unsustainably high cost of borrowing. Now that the austerity programme has been rejected, economists also believe Portugal must ask for help. “Portugal moved another step closer to needing a bailout yesterday,” said Gary Jenkins, the head of fixed interest research at Evolution Securities. “Even with complete political harmony it was always going to be difficult for Portugal to persuade investors to continue to fund them and thus yields are likely to rise further from what has already been described as unsustainable levels by Portuguese officials.” George Osborne concerned The chancellor, George Osborne, tried to calm nerves, saying talk of a bailout was “speculation” at this stage, but conceded that the situation was unsettling. “What is happening in Portugal is certainly concerning. It reminds us that we are not alone in facing these challenges,” said Osborne. Portugal needs to refinance £4bn of bonds in April. It has also emerged that the new European stability mechanism – to which Britain will not sign up – will not be signed off at the two-day meeting in Brussels, as had been planned. Instead, the deadline for a final agreement has been pushed back to the end of June. “When I started working in the City I was often told to follow the old ‘under-promise and over-deliver’ formula; the EU seems to be going for the opposite strategy when it comes to dealing with the crisis,” Jenkins added. Fears that the European debt crisis may spread to Madrid were heightened on Thursday morning, when Moody’s downgraded most of the Spanish banking sector. Holger Schmieding, chief economist at Berenberg Bank, argued that Spain was in much better shape than its Iberian neighbour. “You can never say anyone is safe in these times. There is always the danger of a run on a country. But Spain is in a significantly better position than Portugal, which in every likelihood will need a bailout now,” Schmieding told Bloomberg TV. Britain’s inclusion in the €440bn temporary stabilisation mechanism is controversial because Alistair Darling signed up for the plan on 10 May 2010 – during the hiatus between the general election and the formation of the coalition government. Osborne, who replaced Darling as chancellor later that week, has insisted that he would have taken a different decision. Britain is lending a total of £7bn to Ireland, partly through the European rescue and partly as a bilateral loan. Osborne has said that he expects Britain will make a profit on the agreement, as long as the money is eventually repaid.

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March 24 2011, 11:02am | Comments »
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Portugal’s new tourism draws are Phantom Of The Opera and Evita

http://distributedresearch.net/blog/2011/03/20/portugals-new-tourism-draws-are-phantom-of-the-opera-and-evita

The near-bankrupt country of Portugal hopes a new festival of British musical theatre acts will draw the tourists it needs to recover. The Phantom of the Opera, Evita and Jesus Christ Superstar head the bill. Maybe other versions top London shows will follow.

This article titled “Portugal’s new tourism draws are Phantom Of The Opera and Evita” was written by Vanessa Thorpe, for The Observer on Sunday 20th March 2011 00.05 UTC The songs of Andrew Lloyd Webber have moved audiences to tears and set box office tills ringing in London’s West End for more than 30 years, but can they help to shore up the Portuguese economy? As the country struggles this weekend to play down new fears about an impending bailout by the International Monetary Fund, the national tourist agency has announced a plan to draw a stream of British tourists into Portuguese resorts this summer by booking a succession of popular British entertainment shows and acts. At the top of the bill are The Phantom of the Opera, Evita and Jesus Christ Superstar. The British band Morcheeba is already booked, as is jazz singer Norma Winstone. There are also plans to bring in Lamb, the electronic trip-hop musicians from Manchester. The entertainment scheme, called Allgarve Nations, aims to celebrate the culture of one of the favourite visiting nations each year in turn. “For this first edition we have chosen the United Kingdom, which is our main tourism market, with a programme that includes British artists as well as national ones,” said Augusto Miranda, the co-ordinator of the campaign. “The cherry on the cake is that we are still working on the programme and there are more surprises to come,” he added, announcing the programme of events in Faro last week. Despite his country’s economic crisis, Miranda said he hopes to secure the normal budget of €3m for promotional schemes this year. A reliable flow of holidaymakers from Britain has been crucial to Portuguese finances for some years, but the heavy burden of the economic crash means it is no time for complacency. The influential credit ratings agency Moody’s downgraded Portugal’s financial standing by two notches last week in view of the country’s weak growth prospects. The move prompted damaging speculation that a bailout similar to those handed out last year to Ireland and Greece cannot be far away. The rating agency said “subdued growth prospects and productivity gains” over the near- to medium-term were behind their decision, as was concern that reforms to the labour market and the justice system had yet to “bear fruit”. On Friday the Portuguese prime minister, José Sócrates, urged his parliament to back new austerity measures. “I will do what it takes to avoid a bailout,” he said, emphasising his determination to go to the EU summit this week with a solid plan. His minority socialist-leaning government has staked its reputation on avoiding a bailout and it claims its new programme of spending cuts – the fourth in a year – will restore market faith in the economy. Opposition parties are calling for more, including a pensions freeze. Another glimmer of hope for the Portuguese tourist economy comes from plans for more low-cost flights to the Algarve. A budget airline, Jet2, has announced that it will be adding two new British routes to and from Faro from next month. Property professionals believe the news will help to revive the plummeting local property market by encouraging investors who want to buy second homes and let them to holidaymakers. Prince Charles and Camilla, the Duchess of Cornwall, are due to make an official visit to Portugal next week as part of a tour also taking in Spain and Morocco. Their visit will begin in Lisbon and will, according to Clarence House, “celebrate long-standing co-operation between the Portuguese and British navies, support British trade and investment opportunities and highlight the work of the substantial resident British community”.

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March 19 2011, 7:23pm | Comments »
I posted to distributedresearch.net

Portugal bailout fears rise as credit rating cut

http://distributedresearch.net/blog/2011/03/16/portugal-bailout-fears-rise-as-credit-rating-cut

Portugal is being lined up as the next victim for the IMF treatment. So far the only country that has managed to resist has been Iceland.

This article titled “Portugal bailout fears rise as credit rating cut” was written by Graeme Wearden, for guardian.co.uk on Wednesday 16th March 2011 10.11 UTC City analysts warned on Wednesday that Portugal is moving closer to the brink of seeking financial help, after Moody’s cut the country’s credit rating by two notches. The ratings agency concluded a review of Europe’s weaker economies by warning that Portugal’s growth prospects are poor, and questioning whether it can keep borrowing from the financial markets for much longer. The downgrade, from A1 to A3, leaves Portugal with Moody’s seventh highest credit rating, just four notches above “junk”. It brings Moody’s into line with the other ratings agencies, and piles more pressures on Portugal ahead of its next debt auction. Moody’s said that Portugal faces “subdued growth prospects and productivity gains” over the next few years until its structural reforms kick in. It also warned that the Lisbon government could fail to implement its austerity measures, which are opposed by other political parties, and might also have to pump more money into its banking system. It also maintained a negative outlook on Portugal’s sovereign debt, saying there is more chance of a further downgrade than an upgrade in the next two years. Portugal’s treasury secretary, Carlos Pina, said that Moody’s decision was “hasty”. Arturo de Frias, head of banks research at Evolution Securities, warned that Portugal’s banks are still relying on €42bn (£36.5bn) of lending from the European Central Bank. “The Portuguese government has given an April 30 deadline to the banks to strengthen their capital,” said de Frias. “It seems increasingly likely that they will fail to do so, and the government will eventually end up having to provide capital. This might trigger the sovereign bailout,” he added, Challenging path ahead Portugal is resisting pressure to seek a bailout from the European Financial Stability Fund (EFSF), insisting it can cut its deficit and reduce its borrowing needs independently. Last week it announced a new swathe of cutbacks and reforms in an effort to boost market confidence. It is scheduled to auction up to €1bn of 12-month debt on Wednesday morning. But the interest rates on Portugal’s debt remain at levels that are widely seen as unsustainable. The yield on five-year Portuguese bonds rose to almost 7.5% on Wednesday morning. “The cost of market funding is likely to remain high until the deficit has been reduced to a sustainable level and the prospects for economic growth have improved,” Moody’s warned. “If the government seeks funds from the EFSF rather than capital markets, Portugal would likely gain access to liquidity at lower cost than it currently faces in the capital markets and limit some of the potential increase in its debt servicing costs, but the path to regaining market access at favourable terms would remain challenging,” Moody’s cautioned. Portugal’s opposition parties have blasted the latest austerity package, and vowed to oppose it. Jane Foley, senior currency strategist at Rabobank, warned that this could thwart the Lisbon government’s efforts to avert the need for a bailout.

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