Daily Commentary: Eyes will now turn to Spain and Portugal

This is a bronze level post. These are the links with my daily commentary for 9 Mar 2012 on the Greek PSI deal and the renewed urgency this makes for Spain and Portugal.


Most of what we’re going to hear in the news has to do with Greece and the jobs report. i have written on both in the last two member articles, so you know what my overall analysis is. Let me address a bit more on Greece here.

I read a brief Belgian article in Le Soir saying that Greece exceeded its targets again with the Q4 2011 budget deficit coming in at 7.5% instead of the target of 7% anticipated and announced on 14 February. basically, Greece continues to miss targets, and this is understandable given the policy framework of austerity sucks demand out of an economy, lowers tax receipts and increases social programs. The problem of course is politically this will be seen as another sign that the Greeks just can’t get it done; and so the reluctance to pony up will be that much greater in countries like the Netherlands or Austria, which have their own budgetary difficulties to address. I believe discussion about a euro exit will intensify.

Then you have Portugal (and Ireland). Now that the Greek deal is done. The Portuguese are likely to want to negotiate a debt restructuring as well. Nothing has changed in Greece except for occupation by Troika administrators. There are no new harsh terms for Greece to implement versus before they restructured. So the incentive to restructure is definitely there in Portugal, especially if protests over austerity begin to pick up.

I would handicap two scenarios in the periphery: Portugal’s restructuring and a Spanish crisis. Both are now more likely and both are bearish for periphery sovereign debt.

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P.S. – Of particular note on Spain, read the Martin Wolf piece and the Lynn Parramore one.

P.P.S. – I see nothing fundamentally wrong with the artifical constraints that debt to GDP or deficit targets represent. The problem is in making the targets flexible and reasonable. Right now, the EU is assuming zero balance over the course of a business cycle would work. This is too low and doesn’t allow the private sector any room for net savings. If the EU understood this, maybe they could still use targets and not create a deflationary environment.

That’s it. Here are the links

  • Correlations on porn – Marginal Revolution

    found no relationship between being pro the legality of porn, or propensity to watch porn, and pro social behaviors e.g. volunteer work, blood donation, etc. We can dismiss the feminist (and sociological) charges of porn increasing sexual violence and leading to sexism. The USA, Sweden, Germany, Netherlands (2) and Japan were just some of the countries that suddenly went from no legal pornography to quite widespread availability and consumption of it.

  • Drop in UK industrial output reignites recession fears | Business | guardian.co.uk

    Official data deals blow to chancellor George Osborne as he trumpets role of manufacturers in recovery ahead of budget

  • Grèce : au 4e trimestre 2011, la récession a été pire que prévu – lesoir.be

    La récession qui frappe la Grèce depuis 2008 s’est fortement accentuée fin 2011 avec un PIB révisé, qui a plongé de 7,5 % au lieu du recul de 7 % annoncé le 14 février dans une première estimation, a indiqué vendredi l’office des statistiques grec.

  • FT Alphaville » Greek PSI – the implications

    In other words, Greece’s woes are hardly over yet. What’s more, this may be the point that euro exit really gets put on the table. ¡Ay

  • The Best Twitter Client for Android

    We think Twicca deserves the nod for the top spot, thanks to its beautiful UI that looks minimal but hides a wealth of features, color-coded filters and lists, and a built-in image viewer that’s so useful you’ll use it in other applications.

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  • ‘Integratiebeleid werkt niet meer’ :: nrc.nl

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  • Puerto Rico is America’s Greece | MuniLand

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  • Lynn Parramore: Schools Without Toilet Paper? The Pain in Spain Falls Mainly on the Plain Folks « naked capitalism

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  • The pain in Spain will test the euro – FT.com

    Germany’s determination to impose a fiscal hair shirt on its eurozone partners did not work in the "stability and growth pact". Is it going to work in the "treaty on stability, co-ordination and governance" agreed last week? I doubt it. The fundamental new rule is that a member’s structural fiscal deficit should not exceed 0.5 per cent of gross domestic product. In effect, this would require countries to run structural surpluses. Moreover, if a country has debt over 60 per cent of GDP, the excess shall be eliminated at an average rate of a 20th of the excess each year. A country such as Italy, with debt at about 120 per cent of GDP, would lower the ratio at a rate of 3 per cent of GDP each year. This framework is the one to which all eurozone members must accede. These rules are to be embedded in law, preferably constitutional law.

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