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Posts Tagged ‘PIIGS’

Who/What is Driving European Sovereign Spreads?

Posted by Larry Doyle on April 27th, 2012 9:11 AM |

The center of our global financial crisis squarely rests upon the Euro-zone in general and a number of peripheral sovereign states specifically. The movement in spreads within this market are often vicious.

The  European Central Bank has thrown the kitchen sink in the form of its 3-year LTRO (long term refinancing operation) at the massive debt problem. The LTRO aside, do you get the sense that there is a far greater force at work behind the scenes driving these markets? I do. Who and what are really driving spreads within the Euro-zone?

Let’s navigate as the Journal of International Money and Finance addresses this critically important topic in its April 2012 issue.  (more…)

Irish Bailout Is a Backdoor Bailout of European Banking System

Posted by Larry Doyle on November 18th, 2010 6:20 AM |

What is going on in Ireland? Those forty shades of green look so inviting. How could it be that the Emerald Isle is the center of the current financial turmoil? Well it is…and it isn’t.

How is it that a variety of Irish officials can claim that they neither need nor want a bailout from the EU but a bailout is assuredly on the way? Are we witnessing a sovereign nation losing the ability to control its own affairs? There is no doubt the Irish are a proud people but are they also being overly stubborn at this juncture (believe me, I know proud and stubborn…!!)? Are the Irish failing to accept the inevitable? Hadn’t the Irish attempted a Swedish style approach in terms of aggressively recognizing losses within their financial sector?

While the answer to all of these questions is a varying degree of the affirmative (especially the proud and stubborn..!!), to truly understand what is happening in Ireland, we actually need to shift our focus to the European mainland. Really? Why’s that? Let’s navigate the tangled web and interconnectedness of the global banking system circa 2010. (more…)

The Time Bomb of Global Government Debt and Deficits Is Ticking Louder

Posted by Larry Doyle on June 23rd, 2010 12:35 PM |

Living beyond one’s means is a path to long term pain. That path is not in front of us, but rather is upon our nation and many others around the world.

The cost of funding the global government debt and deficits will continue to serve as a drag on our economic future. While financial wizards may believe the debts can be postponed, the simple fact is in the midst of a sluggish economy, global governments will not generate sufficient tax revenues to fund spending programs and the deficits. What does this mean? Lessened spending, increased taxes, and assorted other measures of fiscal austerity.

The Financial Times provides a fabulous review on this topic today in writing, Public Finances: Daunted by Deficits: >>> (more…)

Rogoff: EU Bailout Will Not Stop Defaults

Posted by Larry Doyle on May 19th, 2010 8:57 AM |

Kenneth Rogoff

Shock and awe? The trillion dollar bailout of the debt-ridden nations within the EU was supposed to backstop the Euro and put investors at ease. As of this juncture, the politicians and central bankers are likely the only individuals left shocked and awed.

Rather than writing checks and overpaying for debt, perhaps these politicos and their central banker friends should call on those who have studied global economic and financial crises. Like who? Harvard’s Kenneth Rogoff, who pointedly details that the very structure of the EU-bailout will be insufficient in forestalling defaults within the EU. (more…)

How Big Are These PIIGS?

Posted by Larry Doyle on May 11th, 2010 10:41 AM |

The bailout package provided for the EU yesterday is not quite a trillion dollars. Lot of money, right? Yes, even in this day and age a trillion is a large number, although our friends in Washington may not appreciate that.

Will the bailout be enough to buy time for the economies of the PIIGS to recover and stop the spread of contagion across the EU and then the world at large? In order to address that question, we need to assess just how big and fat these PIIGS are in terms of their outstanding debt and their fiscal deficits, as well. To this end, I thank a loyal Sense on Cents reader for sharing a chart drawn up by Bank of America which highlights the size of these PIIGS:

Will the PIIGS economies be able to generate sufficient economic growth to finance their debts and deficits at reasonable rates? Great question. We will not learn the answer to it anytime soon, but do not think that the bailout provided to the EU yesterday is an “all clear” signal. The mountain of debt and fiscal deficits within these PIIGS will provide a real drag on these countries and the EU as a whole for the foreseeable future.

The violation of moral hazard involved in this bailout will also serve as an economic drag as well. That concept is quite familiar to those of us in America who appreciate fiscal discipline.


Spanish Domino Tipping

Posted by Larry Doyle on April 28th, 2010 11:49 AM |

Spain’s credit rating was just cut by S&P from AA+ to AA. The outlook is negative. The Euro just made new 12 month lows to 1.3137 on this breaking news. Why is this news important? The economic contagion is clearly spreading across the EU. Is Ireland next? What about the granddaddy of them all, that being the United Kingdom? Could the pressures within the EU actually cause some countries to leave and the EU monetary union to crumble?

The size of the Spanish economy, which is considerably larger than both the Greek and Portuguese economies, makes these developments very serious. Is there any doubt the domino effect is well underway?


Where Will Euro-Dominoes Stop?

Posted by Larry Doyle on April 28th, 2010 8:34 AM |

While many eyes, including mine, were fixated yesterday on the Senate hearings grilling the Goldman Sachs’ executives, the fact is much more serious issues are playing out across the pond. Greece is literally on the precipice of default. Is Portugal far behind? Will Ireland be next? Will the financial train wreck in Europe be contained? Is that a pipe dream in a world interconnected via a massive credit derivatives market?

Who has a great pulse on the Euro-zone? Simon Johnson, former chief economist of the IMF, co-author with James Kwak (my BlogTalkRadio guest on April 11th) of 13 Bankers, and blogger at Baseline Scenario. Johnson sheds timely insights on moves within the European bond markets and potential for another wave of global financial crisis in writing, Wake the President:

Most days we can coast along, confident that tomorrow will be much like yesterday. On a very few days we need to look hard at the news headlines, click through to read the whole story, and then completely change a large chunk of how we thought the world worked. Today is such a day. (more…)

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