Portugal

Will Financial Problems In Portugal Cause The European Debt Crisis To Spiral Out Of Control?

Most Americans have no idea just how bad the financial problems over in Europe are right now.  The truth is that the entire European financial system is teetering on the brink of disaster.  Ireland and Greece have already received bailouts and Portugal, Spain, Italy, France and Belgium are all drowning in an ocean of unsustainable debt.  Sovereign credit ratings all over Europe have being slashed in recent months.  For example, a while back Moody’s Investors Service cut Ireland’s bond rating by five levels.  Up until now Europe has weathered all of this financial instability fairly well, but now huge new financial problems in Portugal threaten to send the European debt crisis spinning out of control.

The Prime Minister of Portugal, Jose Socrates, resigned on Wednesday after the major opposition parties banded together to vote down the austerity measures that he was requesting.  The package of budget cuts and tax increases was intended to get Portugal’s horrible debt crisis under control.  Prior to the vote, the prime minister warned that  he would no longer be able to run the country if the austerity package was not passed.

Now there are all kinds of questions about what is going to happen to Portugal.  At this point most financial authorities in Europe seem to be assuming that Portugal is going to need a bailout.

Today, Standard & Poor’s reduced the credit rating of long-term Portuguese government debt from “A-” to “BBB”.  Standard & Poor’s is also warning that the credit rating may be cut further if negotiations for a bailout do not go well.

Without a bailout, it seems almost certain that Portugal will default.

Interest rates on Portuguese government debt have risen to unsustainable levels.  The yield on 10-year Portuguese bonds hit 7.78% on Friday.  That was the highest it has been since Portugal joined the euro.

Authorities in Portugal are publicly saying that they simply cannot afford to pay that kind of interest.  Unfortunately for them, it appears that Portugal is going to be forced to issue more bonds by June at the very latest.

So how much would a bailout of Portugal cost?

Well, according to one estimate, it would probably be in the neighborhood of 70 billion euros.

That isn’t going to sink Europe.

However, the concern is that the crisis in Portugal could have a domino effect.

There is increasing worry in Europe that Portugal’s neighbor, Spain, could also need a bailout.  But a bailout of Spain would potentially be so large that it would cause a financial nightmare for Europe.

The following is how a recent article in the Wall Street Journal sized up the problem….

Portugal’s admission that it will probably need a financial bailout raises a question that will shape the outcome of the euro zone’s debt crisis: Is Spain next?

The cost of saving Spain, a €1.1 trillion ($1.56 trillion) economy, would dwarf previous bailouts and could test the financial strength of Europe as a whole.

The truth is that the rest of Europe simply does not have the kind of financial muscle necessary to continue putting together huge bailouts indefinitely.  If Spain does go down, it is going to put a massive amount of strain on the rest of the continent.

There are other financial problems simmering in Europe right now as well.

According to a recent Business Insider article, the financial problems in Ireland are also creating a lot of concern at the moment….

Ireland’s banks are likely to need another $39 billion in support, which would use up 80% of its current bailout funds.

Ireland is a financial basket case right about now.  Confidence in Irish debt is rapidly evaporating.  In fact, the yield on 10-year Irish bonds recently hit 10.12%.

Ouch!

But that is nothing compared to what Greece is being forced to pay.

The yield on 10-year Greek bonds recently reached an astounding 12.58%.

There are persistent rumors that Greece is going to need yet another bailout.  The truth is that Germany and the other European nations that are coming up with the cash for these bailouts are just pouring their money into financial black holes.

Nations like Greece and Ireland are just money pits at this point.

As I have written about previously, the financial collapse of Europe has basically become inevitable.  The EU can keep coming up with bailout plan after bailout plan, but they are only putting off the crash for a while.

Eventually a point will come when all of the balls simply cannot be kept up in the air anymore.

So what is going to happen once that point is reached?

Well, many believe that we could actually see the end of the euro and potentially even the break up of the European Union.

Of course top politicians in Europe will fight tooth and nail to keep that from happening, but the truth is that at some point we are going to see some incredibly challenging financial problems in Europe.  How the EU responds to the crisis is going to be extremely interesting to watch.

So many people talk about the death of the U.S. dollar, but the truth is that we could very easily see a financial collapse and a major currency crisis in Europe prior to the collapse of the dollar.  Europe is in really, really bad shape right now.

Of course it doesn’t help that the entire world is so incredibly unstable right now.  The disaster in Japan, the war in Libya, the revolutions across the Middle East and the surging price of oil all threaten to throw the global economy into turmoil.

As I discussed in a previous article, people need to start preparing for economic disaster.  The entire global financial system is coming apart.  The U.S. economy is crumbling, Europe is dealing with an unprecedented debt crisis and Japan has just been struck with the worst economic disaster that it has seen since World War 2.

Most Americans don’t pay much attention to what is going on in Portugal (or in the rest of Europe for that matter), but they should.  The world is more interconnected than ever, and if Europe experiences a financial meltdown it will have dramatic consequences for the United States as well.

The financial crash of 2008 swept the entire globe and virtually every nation on earth was deeply affected.  The next wave of the financial crisis is also going to be felt globally.

We live in one of the most interesting times in the history of the world.

Are you prepared for what is about to happen?

Could The Financial Crisis Erupting In Ireland, Portugal, Greece And Spain Lead To The End Of The Euro And The Break Up Of The European Union?

The Irish banking system is melting down right in front of our eyes.  Ireland, Portugal, Greece and Spain are all drowning in debt.  It is becoming extremely expensive for all of those nations to issue new debt.  Officials all over Europe are begging Ireland to accept a bailout.  Portugal has already indicated that they will probably be next in line.  Most economists are now acknowledging that without a new round of bailouts the dominoes could start to fall and we could see a wave of debt defaults by European governments.  All of this is pushing the monetary union in Europe to its limits.  In fact, some of Europe’s top politicians are now publicly warning that this crisis may not only mean the end of the euro, but also the end of the European Union itself.

Yes, things really are that serious in Europe right now.  In order for the euro and the European Union to hold together, two things have got to happen.  Number one, Germany and the other European nations that are in good financial condition have got to agree to keep bailing out nations such as Ireland, Portugal and Greece that are complete economic basket cases.  Number two, the European nations receiving these bailouts have got to convince their citizens to comply with the very harsh austerity measures being imposed upon them by the EU and the IMF.

Those two things should not be taken for granted.  In Germany, many taxpayers are already sick and tired of pouring hundreds of billions of euros into a black hole.  The truth is that the Germans are not going to accept carrying weak sisters like Greece and Portugal on their backs indefinitely.

In addition, we have already seen the kinds of riots that have erupted in Greece over the austerity measures being implemented there.  If there is an overwhelming backlash against austerity in some parts of Europe will some nations actually attempt to leave the EU?

Right now the focus is on Ireland.  The Irish banking system is a basket case at the moment and the Irish government is drowning in red ink.  European Union officials are urging Ireland to request a bailout, but so far Irish Prime Minister Brian Cowen is not taking the bait.  The Irish government does not seem too keen on having even more austerity measures imposed upon it by the EU and the IMF.

According to Nadeem Walayat, the harsh austerity measures that Ireland has endured during this past year have only made Ireland’s financial problems even worse….

The people of Ireland having endured over a year of austerity on the promise that it was all necessary to suffer pain today by cutting public spending so as to reduce the annual budget deficit to sustainable level for economic gains tomorrow. Instead the exact opposite is taking place as the Irish economy contracts due to economic austerity whilst its bankrupt banks are sending the countries debt and liabilities soaring, thus resulting in a far worse budgetary position than where Ireland was before the austerity measures were implemented as the bond markets are waking up to evitable debt default which is sending interest rates demanded to hold Irish debt soaring to new credit crisis highs.

But the big Irish banks are bleeding cash fast.  For example, the Bank of Ireland recently reported “a 10 billion euro outflow of deposits from early August until the end of September.”  Irish banks and the Irish government need help whether they are willing to admit it or not.

But Ireland is not the only one in trouble.  Portugal became the latest European nation to push the panic button when Portuguese Finance Minister Fernando Teixeira dos Santos announced that his country was in such bad financial shape that it might have to seek a bailout package.

Things are so bleak in Portugal right now that Foreign Affairs Minister Luis Amado says that his nation “faces a scenario of exit from the euro zone” if a solution is not found for this financial mess.

On top of all this, word is coming out that Greece is in even worse financial condition than initially believed.  The statistics agency for the EU, Eurostat, revealed on Tuesday that Greece’s deficit for 2009 was actually 15.4% of GDP rather than 13.6% of GDP as originally thought.

The Greek national debt is now well over 120 percent of GDP.  It seems inevitable at this point that Greece will need more bailouts if they are to remain part of the EU.

Spain is also starting to feel the heat.  Spain’s short-term debt financing costs jumped sharply on Tuesday, and officials in Spain are begging the Irish government to accept the bailout they are being offered so that the “contagion” does not spread.

But could a few mid-size countries in Europe really cause the next great global financial crisis?

Yes.

In the UK, veteran Conservative MP Peter Tapsell is warning that a total collapse in Ireland “could pose as great a threat to the world economy as did Lehman Brothers, AIG and Goldman Sachs in September 2008”.

Already we are seeing world financial markets getting rattled by all this news.

Fears regarding what is happening in Ireland, Greece, Spain and Portugal helped push the Dow Jones industrial average down nearly 200 points on Tuesday.

But the real story is that this financial crisis in Europe could potentially cause the break up of the euro and of the European Union.

The truth is that the euro and the European Union are inseparably linked at this point.  In fact, EU President Herman Van Rompuy is warning that if some of the weaker countries in Europe are forced to abandon the euro it will likely cause the total destruction of the European Union….

“We’re in a survival crisis. We all have to work together in order to survive with the euro zone, because if we don’t survive with the euro zone we will not survive with the European Union.”

German Chancellor Angela Merkel is also warning that a failure of the euro could bring down the entire European Union….

“If the euro fails, then Europe fails.”

But officials in Europe are not going to let the dream of a united Europe slip away easily.  Right now they are working really hard to keep Europe together, and that means some “tough love” has to be imposed on the “weak sisters”.  As these weaker European economies collapse, they are being forced to accept harsh EU mandates in exchange for bailouts.  As Ambrose Evans Pritchard recently pointed out, “forced austerity” is quite similar to serfdom….

Greece is now under an EU protectorate, or the “Memorandum” as they call it. This has prompted pin-prick terrorist attacks against anybody associated with EU rule. Ireland and Portugal are further behind on this road to serfdom, but they are already facing policy dictates from Brussels, but will soon be under formal protectorates as well in any case. Spain has more or less been forced to cut public wages by 5pc to comply with EU demands made in May. All are having to knuckle down to Europe’s agenda of austerity, without the offsetting relief of devaluation and looser monetary policy.

In the end, Europe is going to move in one of two directions.  Either this financial crisis will finally be the thing that breaks up the euro and the European Union, or it will result in a Europe that is ruled even more strongly by EU bureaucrats.

As this crisis unfolds over the next couple of years, the EU is going to try to grab more power and more control.  They are going to ask national governments to give up substantial amounts of power and sovereignty in exchange for bailouts.  So far it is working.

But at some point will one nation say that enough is enough?

Perhaps that one nation could be Ireland.  The citizens of Ireland actually voted “no” on the EU Constitution, but then the EU forced them to vote a second time so that they could “get it right”.

Wouldn’t it be ironic if it is Ireland that ends up lighting the fuse that breaks up the euro and the European Union?  The Irish are a fiercely independent people, and they have a history of resisting tyranny.

In any event, this is going to be an extremely interesting winter across the EU.  If things go badly, the entire global financial system could be plunged into mayhem.  Let us hope that does not happen.

Why You Should Be VERY CONCERNED About The Financial Crisis In Greece

Up to this point, it seems as though most Americans have not really been too concerned about the financial meltdown that is taking place in Greece.  But they should be.  The truth is that the debt crisis we see playing out in Greece may soon repeat itself in some of the largest nations in the world such as Japan, the U.K. and even the United States.  Once upon a time, this kind of thing only happened in third world nations, but now virtually every nation on earth has a debt problem.  As the saying goes, the borrower is the servant of the lender, and so when a country like Greece gets in way, way too deep financially, it ends up having to give up a portion of its sovereignty to those controlling the purse strings.  In the case of Greece, those controlling the purse strings are the IMF and the EU.  But it just isn’t Greece that is in trouble.  Dozens of nations are in serious financial trouble and are at the mercy of those who can bail them out.  The truth is that global financial institutions like the IMF, the World Bank, the European Central Bank and the Federal Reserve are increasingly gaining power all over the globe as governments around the world continue to accumulate frightening amounts of debt.

This has been quite a week for Greece and for the other nations in Europe teetering on the edge of financial disaster.  Standard & Poor’s reduced Greek debt to “junk” status, and Spain and Portugal’s debts were also downgraded substantially.  These unprecedented steps by Standard & Poor’s have many concerned that this financial “contagion” could start spreading across all of Europe.

We’ll take a look at the “austerity measures” being forced on Greece in a moment, but first it is important to note that financial panic is already spreading to other nations in the region.

In Portugal, the government has announced that additional “austerity measures”, beyond those in the current three year plan, are expected to be implemented.  Perhaps they wouldn’t need to take such drastic steps if they hadn’t spent all of those millions constructing those shiny new soccer stadiums a few years ago.  But in any event, many analysts are now forecasting that Portugal will be the next domino to fall.

Officials in Spain are expected to announce this week that unemployment has hit 20%.  But of course any nation that implements a hardcore “cap and trade” law like the one in Spain should expect unemployment to soar into the stratosphere.  So they are just reaping what they have sown, but the fallout could end up being very painful.  Spain’s economy is approximately five times larger than Greece’s so if Spain ends up defaulting it will create a financial nightmare for all of Europe.

There are now rumors that even Italy and Ireland are in a massive amount of trouble financially.

So will the EU and the IMF end up having to bail all of them out?

Well, for now Greece is first in line.

European officials said on Friday that the Greek government, facing a rapidly deteriorating financial situation, is close to completing negotiations for assistance from the International Monetary Fund.

So Greece is going to get the money that it needs – but it comes with strings.

Greece must surrender some of its fiscal sovereignty and adopt a three year program of severe spending cuts and higher taxes.

In fact, one major Greek newspaper says that wage and job cuts for public workers will also be ordered alongside the spending cuts and tax increases to get through what they are calling “three hard years”.

You see, the truth is that Greece is a highly socialized nation.  In a population of just over 11 million people, Greece employs more than a million in the public sector.

Just think about that for a moment.

That is huge.

They get paid extremely well, and Greek civil servants also enjoy very generous pension benefits and early retirement.

Needless to say a lot of these Greek civil servants are not happy at all about the changes the IMF is forcing upon them, and they have called a general strike for May 5th.

For his part, the Greek Prime Minister, George Papandreou, is trying to convince the Greek people that these new spending cuts and tax increases are necessary to keep his nation afloat.  According to The Associated Press, Mr. Papandreou recently told the Greek Parliament the following….

“The measures we must take, which are economic measures, are necessary for the protection of our country — for our survival, for our future, so we can stand firmly on our feet.”

There are even fears that this sovereign debt crisis could spell the end for the Euro.  Back on Wednesday, the leaders of the 16 countries currently using the Euro called an emergency meeting to attempt to avert a Euro meltdown triggered by Greece’s financial collapse.

Of course the Euro is not actually going to collapse, but the fact that they all felt the need to get together and talk about this situation is quite telling.

In fact, the language used by some of the top financial authorities in the world when speaking about the Greek debt crisis is quite alarming….

Angel Gurría, head of the Organization for Economic Cooperation and Development:

“This is like Ebola. It’s threatening the stability of the financial system.”

Colin Ellis, economist at Daiwa Capital Markets:

“The time for horse-trading, prevarication and posturing is over. Arguably, the very future of the euro area is now teetering on a knife edge.”

Dominique Strauss-Kahn, head of the International Monetary Fund:

“If we don’t fix it in Greece, it may have a lot of consequences on the EU.”

But for the people of Greece, getting help with their debt means giving up their ability to determine their own affairs.  They have gotten into so much debt that now they are forced to do whatever the IMF and the EU tell them to do.  Of course there are many in Greece who are extremely upset by this as evidenced by the recent riots there….

But this is what happens when a nation allows itself to get into way too much debt.  In fact, this has been done by design in third world nations for decades.  In his extraordinary book, Confessions of an Economic Hitman, John Perkins explained how it was his job to go around the world and get third world governments to accept multibillion-dollar loans that he knew they would never be able to repay.  Of course when the time came and they could not repay the loans, the big global institutions would go in and confiscate natural resources and impose “conditions” and implement “austerity measures” similar to the ones they are currently imposing on Greece.

The alarming thing today is that it just isn’t third world nations where this game is being played anymore.  Now that they have perfected the blueprint, they are trying it out on nations like Greece.

The reality is that this is all part of the push towards globalization.  In fact, Jean-Claude Trichet, the president of the European Central Bank, emphasized the need for global coordination in financial matters during his April 26th address at the Council on Foreign Relations.

“Global coordination” sounds nice, but just like “global governance” and “global cooperation”, it is just another way of saying that we need to transfer more power and more authority to globalist institutions.

You see, whatever problem that pops up (in this instance it is the Greek debt crisis), the solution always seems to be to transfer more power to global institutions.

In fact, as a “solution” to the global financial crisis, the IMF is proposing two new taxes on financial institutions worldwide: a “financial stability contribution” which levies a small charge on financial institution balance sheets, and a “financial activities tax”, which would tax “excess profits” and bonuses.

As the nations of the world continue to get deeper in debt, and as more power and more money is transferred to unelected global institutions, the people of the world may find their lives increasingly being run by heartless bureaucrats on the other side of the globe.

For anyone who loves freedom, that is a very sobering thought.

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