Category: Bailout

FT: Moody’s warns of second rescue for Portugal

If the objective is restored market access, the limits of exisitng crisis resolution arrangements were further exposed by Moody’s four-notch downgrade of Portugal.   The FT has the story here.   This bit is particularly important:

Moody’s cited the tortuous negotiations over Greece in its note, warning that although the likelihood of a restructuring in Portugal was lower than in Greece, the European Union’s “evolving” approach to providing further support “implies a rising risk that private sector participation could become a precondition for additional rounds of official lending to Portugal in the future as well.”

The full Moody’s statement is available via ft.com/alphaville.

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Commission publishes MFF budget proposals

The Commission’s proposals for the EU budget’s next Financial Framework (MFF) for 2014-2020 can be found here. Judged against the parameters I proposed to evaluate the MFF proposal from an Irish perspective, then the proposal is as good as we could have hoped for. RTE reported that “The Government has given a cautious response to the European Commission’s proposed 2014 to 2020 budget” which, given that this is the start of a difficult set of negotiations, is about as close to saying “we are delighted” as you are likely to get.

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Steinbrück: Admit Greece will need restructuring

Given the recent discussions of  the views of Professor H-W Sinn on this site it seems only right to point out that there are also other opinions in Germany. A number of current and former German politicians (Helmut Schmidt, Joschka Fischer) have been critical of the leadership provided by key politicians. Now the former finance minister Peer Steinbrück (still an active opposition politician) has found some clear words: “Greek default is inevitable – lets call a debtors conference.”

ESM will not have preferred creditor status

News organisations are reporting the European Stability Mechanism will not have IMF-style preferred creditor status for countries already in a bailout after all, which is a significant change from the draft treaty setting out the planned design of the fund.   Some reports here: FT; Irish Times; Reuters.

It has been apparent from the timing of spikes in bond yields, as well as from investor/rating-agency reactions, that features of the ESM’s design are considered impediments to Ireland regaining its creditworthiness.   The annoucement is therefore welcome news, though the limited initial falls in bond yields suggest it is not a panacea (see here).  Greater clarity about future debt-sustainability tests and also the form of future private sector involvement are important additional steps.   Greece-related developments are likely to be the main market movers for the time being.

He hasn’t gone away you know…..

Hans-Werner Sinn replies to his critics in relation to Target 2 balances here.  Readers of this blog will undoubtedly draw their own conclusions.  At the heart of his fallacy is the conceptual  absurdity of separate regional credit policies in  a monetary union with perfect capital mobility.