Trouble brewing in Euroland

 

           By yesterday afternoon the price of borrowing ten year money for Portugal had risen to 7.24%, up from 6.75% at the end of last year.  The Spanish borrowing rate rose too, to 5.53%. The Irish one is still at 9.28%, post the “rescue”.

           Given the large sums these countries need to borrow it is going to prove expensive. They will get into that vicious circle where interest costs take an ever rising proportion of the budget, and make controlling total public spending that much more difficult.

            I wonder how much longer, before Euroland politicians want to talk about this, and end up with another “bail out” to try to lower the costs of borrowing for a distressed country or two?

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15 Comments

  1. lifelogic
    Posted January 8, 2011 at 7:27 am | Permalink

    These countries clearly cannot clear their debts at these rates just stop Cameron throwing any more taxpayer’s money at these problems or UK rates will be going up t0 10% too. And with bank margins now very high too if you can find one who lends.

  2. norman
    Posted January 8, 2011 at 7:54 am | Permalink

    I read an interesting link today that took me to Douglas Carswell’s site and he’s been trying, unsuccessfully, to get to the bottom of what advice George Osborne gave to Alistair Darling regarding whether or not we should join the Euro bail out fund.

    The post in question is here, it’s worth a read

    http://www.talkcarswell.com/show.aspx?id=1747

    To sum up, it seems it’s not in the public interest to know about these things, far better down behind closed doors and out of sight of our taxpayers eyes.

    • Denis Cooper
      Posted January 8, 2011 at 7:00 pm | Permalink

      Darling, and Osborne, each could and should have refused to allow any UK participation in any eurozone bailouts on the grounds that they are illegal under the treaties; and either or both could have made it clear that if other EU countries tried to make any fuss about the UK standing aside then the reason would be made very public rather than being glossed over as Cameron did in the Commons on December 20th:

      http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm101220/debtext/101220-0001.htm

      “I thank you, Mr Speaker, for your leniency. No European statement would be complete without a question from my hon. Friend the Member for Stone (Mr Cash). He may have a good point. Article 122 of the treaty refers to help in the case of natural disasters and other emergencies. There are some people who question whether it should have been used in this way to support eurozone countries.”

      At it happened, this was on the same day that Open Europe reported:

      http://openeurope.org.uk/media-centre/summary.aspx?id=1249

      “French Finance Minister: “We violated all the rules” to rescue the euro”

      “In an interview with the WSJ, French Economy Minister Christine Lagarde has said, “We violated all the rules because we wanted to close ranks and really rescue the euro zone.” She said, “The Treaty of Lisbon was very straightforward. No bailing out,” adding that the Greek and Irish rescues, as well as the creation of the bailout fund, were “major transgressions” of the Treaty.””

  3. alan jutson
    Posted January 8, 2011 at 8:43 am | Permalink

    “I wonder how much longer ………..”

    They will just bury their heads in the sand about costs, but demand ever more control over any Country who wishes to re finance.

    Its the Power and Control they like, at it would seem almost any cost.

    The end wish is for the European Parliament to control the whole of Europe as if it was one state, in full control of taxation, regulation, law, defence, foreign affairs.

    Those who cannot see the increasing control are blind to the European dream, and to what is going on.

    So 600 people in a Palace in London need to wake up, and fast.

    • BobE
      Posted January 8, 2011 at 2:26 pm | Permalink

      EUSSR is under construction. But with luck it might go bust first.

  4. Brian Tomkinson
    Posted January 8, 2011 at 9:43 am | Permalink

    When Euroland’s politicians speak the interest rates go up and the problem becomes a crisis. Was it just coincidence that the rates for Spain and Portugal rose the day after the French Finance Minister’s interview on ‘Newsnight’?

  5. Alte Fritz
    Posted January 8, 2011 at 10:27 am | Permalink

    It is an awful thought, but maybe the political ruling class has decided to continue the cover up unless and until there is a crisis too big to handle, Spain being the obvious case. If it does not happen, all well and good. If it does, then they have avoided angry electorates in the meantime, and can then claim that events were too big to control. The dreadful cost will be collateral damage.

  6. Peter van Leeuwen
    Posted January 8, 2011 at 10:56 am | Permalink

    Bail-outs will happen if and when necessary. More interesting I think is how fast the EU can move forward with “federalization” of economic and fiscal policies, good “haircut” policy, update of the Lisbon Treaty and diversification plans for Mediterranean economies (involving the EIB).
    Agreeing among all 17 Eurozone members, and for some areas all 27 EU members. . . it all takes time. But it will happen.

  7. Richard
    Posted January 8, 2011 at 11:40 am | Permalink

    The solution is to stop borrowing so much.
    Governments in UK, Europe and in the USA still are not facing up to the urgent need to cut back their spending to the levels they can afford.
    The general policy seems to be biased towards increased taxes which has a depressing effect on the economy at a time when growth is needed.
    I dont believe the UK will raise anywhere near the levels of tax revenues expected and I dont believe we will achieve the levels of reductions in spending we are anticipating.
    If the balance sheets of some countries were viewed as the financial figures of businesses they would now be at the point of being forced into liquidation.

  8. Mark
    Posted January 8, 2011 at 1:52 pm | Permalink

    The market is simply starting to price in the added default risk. The silly thing is that Merkel’s idea of imposing a pudding bason haircut from on high fails to recognise that it will inevitably prove too timid: far better to let default on coupon payments and a rescheduling negotiation occur. The negotiation might include de-linking from the Euro, as well as an element of debt forgiveness and providing a better maturity profile for PIIGS debts, which would be re-denominated in the new (old) currencies. Dealing with PIIGS is really quite similar to dealing with the Latin American crisis that led to Brady bonds.

  9. Tom
    Posted January 8, 2011 at 4:08 pm | Permalink

    My daughter in law is Spanish and says there is a mounting crime wave in Spain because of unemployment and the economic situation. Unemployment benefit in Spain depends on various factors, including the amount paid in, when it was paid, and salary; in any case it finishes after two years. If you have never had a job you get nothing. Youth unemployment is over 40%.

    Apparently there has been an increasing number of “petty bank robberies” – the robber apologising and just saying “give me what you have, I need to feed my family”. Bag snatching is now common and even in small towns burglaries/thefts are on the increase.

    Given food price inflation, who would deny the possibility of food riots? And not just in Spain.

    • StevenL
      Posted January 9, 2011 at 2:59 pm | Permalink

      I think food riots are precisely what Mr Bernanke wants, but in China, Spain will just be collateral damage.

  10. BobE
    Posted January 8, 2011 at 6:00 pm | Permalink

    This is worth reading.
    Daily Express EU supplement: http://is.gd/knr7l. Fantastic. They deserve a medal.

  11. Mark
    Posted January 9, 2011 at 5:15 pm | Permalink

    Here we go again:

    http://www.reuters.com/article/idUSTRE7081X420110109

    Portugal now. Quelle surprise!

    “Pressure is growing on Portugal from Germany, France and other euro zone countries to seek financial help from the EU and IMF to stop the bloc’s debt crisis from spreading, a senior euro zone source said on Sunday.”

  12. Winston's Black Dog
    Posted January 10, 2011 at 10:05 pm | Permalink

    So how much will we have to pay to bail out the Euro this time?

    Yes I know Osborne said Ireland was a one-off but do you believe him?

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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