Would you lend to Portugal and pay them for the privilege?

This week Portugal managed to borrow one year money at a negative interest rate. Yes, that’s right. The lender has to pay a small sum for the privilege of lending to Portugal. You have had to pay Germany for the privilege of lending to her more often in recent months and over longer term loans,  but for this to happen for Portugal as well is surely a matter to examine.

Portugal currently does not have a Prime Minister. The recent General election did not deliver a majority for any party. The outgoing PM and government was allowed to stay in office by the President, so the left wing parties who thought they had “won” the election voted it down. The President is thinking about what to do next. The outgoing government accepts austerity and the full Euro package of policies. The left wing opposition is anti austerity, though much of it is pro Euro. As we have seen in Greece that is a difficult combination of views to hold. Could the left wing parties come together to form a governing coalition? What would their approach then be to the policies required by the Eurozone?

Portugal is another piece of evidence in the case of the diminishing importance of national democratic choice in the Eurozone. When so many decisions about budgets, taxes, spending and borrowing are made for a country, much of the substance of normal elections is removed from decision by the electors.

Portugal has more than 11% unemployment, with more than 31% youth unemployment. It has only managed a growth rate of 0.4% a year since 1988, and suffered a nasty recession in recent years. Yet despite this, it can now borrow at  no cost.

As the US and UK attempt to distance themselves from Quantitative easing and in the case of the US contemplate an interest rate rise, monetary action and conditions remain anything but normal in the Eurozone. As the zone still finds growth hard to achieve and sustain, and as the scars of the crash and Eurozone crisis are still all too visible in unemployment and poor economic performance, the European monetary authorities experiment further with unorthodox interest rate and borrowing policies. Who would have thought the Germans would do that? Does risk lie ahead as debts are built up with no interest cost.? Why should people save and be prudent in such a world?

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  1. Dame Rita Webb
    Posted November 20, 2015 at 6:24 am | Permalink

    The bigger question is would you lend George Osborne 50p? Now then who has got the bigger budget deficit as a percentage of GDP Greece or the UK?

    • Lifelogic
      Posted November 20, 2015 at 12:09 pm | Permalink

      Just announced this morning.

      Public sector net borrowing (PSNB) rose £1.1bn in October compared with the same month a year ago to £8.2bn, the highest level of borrowing for October in six years.

      I even heard some (typically innumerate) lefty on radio 4 describe George Osborne as “the most right wing chancellor since the war”. Osborne is a tax, borrow and waste merchant to his very core. Worse still Osborne loves absurd levels of tax complexity and is chasing the rich, high tax payers and hard working away from the UK. While keeping open doors to people who will largely be net liabilities to the UK state. Failing further to give any significant incentive to people who work hard over those who simply (often sensibly given the system) choose not to.

      • stred
        Posted November 21, 2015 at 12:21 am | Permalink

        Re tax complexity. Landlords will no longer be able to claim 10% wear and tear off rent. HMRC have introduced a simpler easier method. Landlords will have to claim for real expenses, but this has to be as explained by the rules. A new washer dryer is improvement and cannot simply replace a washer- not allowed. All machines have to be replaced with evidence of disposal, as they may have resale value. When renovating a slum the cost of new carpets etc cannot be claimed against income- only off CGT when sold. And landlords are unscrupulous! It’s all about shafting the taxpayer.

        • Lifelogic
          Posted November 21, 2015 at 12:24 pm | Permalink

          It just means fewer properties available to rent, more accountants, more wasted time for landlords and in the end just much higher rents. It is misguided, counterproductive and immoral, but then what do you expect from the pension robber, tax borrow and waste, IHT (£1M promise) ratter Osborne?

    • petermartin2001
      Posted November 20, 2015 at 2:13 pm | Permalink

      According to my information Greece has a tiny budget deficit of about 1%. So the Greeks are nearly out of the woods with their budget “problem”? Europe’s unemployed will soon be heading to Greece to find work instead of the deficit ridden UK?

      I also noticed Russia has a 0.2% budget surplus but inflation in Russia is into double figures.

      Anyone care to explain that? Hint: There is just a little bit more to economic theory than Govt Surplus = Good. Govt Deficit = Bad !

      • Dame Rita Webb
        Posted November 20, 2015 at 4:07 pm | Permalink

        Another of his achievements has been to double the national debt since 2010. Anybody would think he was a socialist or something.

        • petermartin2001
          Posted November 21, 2015 at 3:02 am | Permalink

          To be fair to Mr Osborne it hasn’t doubled. It has increased from 78% to about 93% of GDP.

          It’s only a problem if we think it’s a problem and start to panic about it. Although the government debt isn’t the same as our debt. It doesn’t have to be repaid and never has been repaid since the concept of the ND was first established at the end of the 18th Century.

          It does have to be serviced though. If you have some money in National Savings you own part of the debt. If you spent that money on something highly taxed like bottles of whisky the debt would fall. So the government has to assume the liability for you to have your asset. Do you think the Govt is paying NS account holders too much interest? I don’t. But maybe you think the Government should pay out even less that it does. Of course it could do that if it wanted to.

        • lifelogic
          Posted November 23, 2015 at 2:50 pm | Permalink

          Not quite double, but Osborne is very clearly a socialist to his core.

          He is someone who thinks the government can spend more efficiently than individuals when in fact they are hugely less efficient by a factor or perhaps 5 at least. Mainly this is because they care not what they spend, nor what value they get. It is not their money nor them getting any value so why should they?

          On top of the above “could not care less attitude” is all the corruption, attempts to buy votes, green crap subsidy religions, pointless wars, idiotic group think, equality drivel and all the attempted government indoctrination of the voters.

      • Edward2
        Posted November 20, 2015 at 4:34 pm | Permalink

        The Greeks have huge debts. They may have their deficit down to 1% whatever that means, but their economy is very poor with high unemployment and low growth.
        Russia just shows how inflation can develop if you follow your economic ideas and increase State “investment” ie spending by printing money.
        No surprises in both nations.

        • petermartin2001
          Posted November 21, 2015 at 3:32 am | Permalink

          Greece needs its own currency so that it can reflate and expand its economy by deficit spending to the extent of something like 5% or 6% . That’s not as much as we saw in the UK and the USA after the GFC but its what is needed to get their economy moving again.

          There’s no known examples of where austerity economics has worked. Ideally it can be argued that money should come from exports but not all countries can be net exporters. So if there’s no export money coming in , and its a criminal offence for the private sector to generate counterfeit money, the ONLY other possibility is for Govt to create it.

          That’s just the way it is.

          • Edward2
            Posted November 21, 2015 at 10:57 am | Permalink

            Who has “austerity economics” ?
            The UK is increasing its State spending from £340 billion in 2000 to over £800 billion by 2020
            How much more of a Keynesian boist do we need?
            Maybe taking that much tax away from all of us is having a depressing effect?

          • petermartin2001
            Posted November 21, 2015 at 9:38 pm | Permalink

            “How much more of a Keynesian boist do we need?”

            I’d say about 5% of GDP bigger.

            “Maybe taking that much tax away from all of us is having a depressing effect? “

            Yes. If the govt doesn’t want to spend more it should just spend the same and tax less, then keep on taxing less until we see inflation start to become an issue.

          • Edward2
            Posted November 22, 2015 at 11:01 am | Permalink

            And if that 5% boost either fails to get the outcome you hope for or sucks in more imports would you ask for another 5% boost ad infintum?

          • Bazman
            Posted November 22, 2015 at 4:34 pm | Permalink

            What will that be as a percentage of GDP edward2 and tax taken away from many has been via cuts to tax credits and disability payments. As long as austerity does not effect you then it is OK.

          • Edward2
            Posted November 22, 2015 at 11:31 pm | Permalink

            I love your “austerity” cliche Baz
            A State that continues to increase spending way above inflation.

            Are you OK with loads of public sector fat cats on six figure salaries and charities and rich overseas nations getting tens of millions?

            Not a penny can be saved
            Yeah right.

          • Bazman
            Posted November 23, 2015 at 5:18 pm | Permalink

            Thats right edward2 austerity is costing us a fortune and Osborne is set to increase the deficit by tens of billions further. Its not about saving money, but shrinking of the state for idealogical reasons even if they do not make sense. No austerity for the rich though is there?

      • lojolondonl
        Posted November 21, 2015 at 9:38 am | Permalink

        Don’t be fooled by politician lies – Greece may have a ‘budget deficit of 1%’ – that just means they overspent this year – but what is their total debt and liabilities, who set the budget, what did the country earn, what did they spend, what is their short, medium and long term borrowing situation, and can they afford their interest payments? All seriously dire!!

        • Bazman
          Posted November 22, 2015 at 4:35 pm | Permalink

          They should be thanked for bailing out the German banks lojo. Thought of that one?

  2. Narrow Shoulders
    Posted November 20, 2015 at 6:46 am | Permalink

    One assumes these Bonds were bought by the ECB. If purchased on the open market that is fine but if the ECB is breaking it’s own rules to prop up the failing Euro zone again it is an unsurprising but concerning development.

    Reply Open market

    • Narrow Shoulders
      Posted November 20, 2015 at 9:26 am | Permalink


      As Edward writes below there truly is too much unproductive QE cash in the system.

    • Denis Cooper
      Posted November 20, 2015 at 12:03 pm | Permalink

      Open market but a false market; through its large scale bond purchases in the secondary bond markets the ECB has turned them into false markets for the bonds issued by the governments of Portugal and other distressed eurozone states, in the same way that the Bank of England created a false market for gilts by buying up surplus gilts to the tune of £375 billion.

      I read here from two days ago:


      “In 2011 Portugal sold 12-month notes with an average yield of 6 per cent. At the time, there were intense fears about the country’s ability to service its debt pile. But today it sold €1.1bn of 12-month debt yielding -0.06 per cent, dipping into negative territory for the first time.

      This is despite fears (albeit mild ones) that the alliance of left wing parties that recently overthrew the centre right government will back pedal on austerity measures.”

      But I also read here from a week ago:


      “The ECB buys over €1 billion a month of Portuguese government debt under the Public Sector Purchase Program (PSPP).”

      So it’s almost as if the ECB has set up a standing order to provide the government of Portugal with an allowance of €1 billion a month, but to avoid a very blatant breach of the EU treaties the money is not paid directly into the account of the government, instead for the sake of appearances it is channeled (or laundered?) through the accounts of private bond investors.

      There is however a caveat in the next part of that article:

      “But how long will the ECB do so if Lisbon walks away from budget discipline? The ECB demands that the bonds it purchases have an investment grade rating. It currently relies on the opinions of four different external credit assessment institutions (ECAIs)—Moodys, Fitch, Standard & Poor’s, and DBRS. However, the first three all rate Portugal’s credit at below investment grade. Only DBRS’s BBB (low) assessment lets the ECB purchase Portuguese bonds, and this DBRS rating is under review. Were Portugal to lose this rating, the ECB would have to stop its quantitative easing purchases, unsettling financial markets.”

      “Ultimately, any new leftist Portuguese government would find that its most important constituents reside not in Portugal but in the credit analysis department of DBRS, located in either Toronto, New York, or Chicago (and owned by a consortium led by the Carlyle Group and Warburg Pincus).”

      Here is some additional information on ECB asset purchases, which are running at about €60 billion a month in total:


      It is noticeable that at the end of October the cumulative total under the Public Sector Purchase Programme across the eurozone was €396 billion, which converts to £277 billion, less than the £375 billion of gilts held by the Bank of England:


      • petermartin2001
        Posted November 21, 2015 at 3:49 am | Permalink


        The ECB demands that the bonds it purchases have an investment grade rating.

        Surely you must have noticed the stupidity of this demand? If the ratings agencies know that the ECB is happy to buy up Portuguese bonds, why wouldn’t they give them a AAA rating? The ECB is the world’s only source of euros. It can never run out of euros any more than the US Fed can run out of US dollars. So if the ratings agencies know that the US Fed is a willing buyer-of-last-resort for US treasuries how can they ever be any less than AAA++ ?

        If we were to write this kind of circular logic into a computer program it would throw up an error message!

        Reply Portuguese bonds are BBB and Greek bonds have had a junk rating for obvious reasons. It is not circular. The ECB is not allowed to buy sub investment grade, and some Euro area risks are or may become sub investment

        • Denis Cooper
          Posted November 21, 2015 at 11:46 am | Permalink

          According to that article the ECB relies on the views of four ratings agencies of which three have already said that Portuguese bonds are not investment grade, notwithstanding your reasoning.

          But I wouldn’t put it past the ECB to strongly lobby the fourth to keep its present rating, or failing that to ignore its own rules.

    • petermartin2001
      Posted November 20, 2015 at 2:24 pm | Permalink

      QE is the EZ is the reason for these negative interest rates. If the ECB is in the market to buy bonds issued by the Portuguese Treasury, the demand will be higher and so will the price fetched at auction. The higher the price, the lower the yield and so the lower the effective interest that will be paid out over the lifetime of the bond.

      That could help the Portuguese government meet its fiscal target. But unless the Stability and Growth Pact Rules are changed to allow Portugal to run an increased budget deficit and actually SPEND the proceeds of QE the effect is unlikely to be enough to revitalise its economy.

      We’ll know the policy in the EZ is working when we actually see a little bit of inflation there. So far, there isn’t any sign of that so the outlook is no better than it was.

      The chances of the EU/EZ looking good in time for the UK referendum are poor. So no need to worry about that!

      • miami.mode
        Posted November 20, 2015 at 10:08 pm | Permalink


        I get the impression from Denis Cooper’s comment above that the ECB is almost acting like a loan shark promising all sorts of retribution if the Med countries step out of line.

        One thing missing from a lot of comments is exchange rates which must have a bearing on bond prices. You mention Russia in an earlier post, but surely their inflation is due to the collapse of the rouble. It must also follow that the way a government conducts its economy will have an effect on the exchange rate.

        • Denis Cooper
          Posted November 21, 2015 at 12:11 pm | Permalink

          I’m not sure I’d compare the ECB to a loan shark, if one thinks of a loan shark as just being interested in extorting money. But as we’ve seen in Greece it has the power to quickly bankrupt any government which has become reliant on it for funding. If it steps too far out of line then it will be deprived of the euros it needs to pay its bills, with all the consequences that entails.

        • petermartin2001
          Posted November 21, 2015 at 12:43 pm | Permalink

          Yes, I’d agree with your ‘loan shark’ comments.

          Russia has had high inflation since the fall of the USSR. It was 20% in 2001. It fell to about 7% in 2011. It’s now back up to ~10%. The reasons are complex, but Russian inflation is not due to any lack of balance in the Russian govt’s budget.

          The last time a Conservative government achieved a balanced budget was in 1990. Yet inflation was about 8.5% then. Higher than it was before the balanced budget and higher than its ever been since even though budgets have nearly always been in deficit.

          Inflation is now ~ 0% and yet we still think we have to somehow ‘balance the budget’ to quell inflationary tendencies in the economy.

          The real and observable evidence just does not stack up with this theory.

          • Edward2
            Posted November 22, 2015 at 9:23 am | Permalink

            Reducing the deficit is not being done to “quell inflation”.

          • petermartin2001
            Posted November 22, 2015 at 8:57 pm | Permalink

            “Reducing the deficit is not being done to “quell inflation”.”

            Well you might be right for once! But that used to be the stated reason why deficits were a bad thing.

            That, now apparently abandoned, reason does of course at least make some economic sense. No-one want to see inflation rage out of control.

            So, we have replaced our previous sensible thinking by nonsensical thinking?

          • Edward2
            Posted November 22, 2015 at 11:34 pm | Permalink

            I’m often right Peter
            You claimed we reduce the deficit because of inflation.
            Glad to point out that was wrong.

    • Iain Gill
      Posted November 20, 2015 at 6:25 pm | Permalink

      There WILL be a government bond crash, just like there will be a house price crash. Governments can only rig the market so much.

      • petermartin2001
        Posted November 21, 2015 at 4:04 am | Permalink

        You’re right about the house price crash but not on the bond crash. The price of government bonds is underwritten by central banks. ie The US Fed, the BoE, the ECB. They can create currency at will to keep the price of these bonds at whatever the government, sorry – their totally independent central banks 🙂 , wish them to be.

        So yes they can some inflation is they overdo their spending but they can never go bankrupt in the way we undersand it , if they (like the US, the UK but not the EZ countries) are in charge of their own currency.

        • Edward2
          Posted November 21, 2015 at 11:03 am | Permalink

          So according to your logic Peter,
          a) the State can just keep printing and creating money to keep us all happy and wealthy creating growth by doing so.
          b)when the house prices crash as you endlessly predict the State can just print even more money and wade into the market and buy up all the properties until prices rise again.
          What could possibly go wrong.

          • petermartin2001
            Posted November 21, 2015 at 10:06 pm | Permalink


            The system, as it is, requires that the State assume the role of the money creator. That’s just the way it is. If you want to abolish the BoE, and the Treasury, you need to set out an alternative plan for how the economy could function and who else could assume that role. I suppose we could go back to using gold and silver coins – if we had to.

            I would say the next crash will burst the property and share market bubble. If the lessons of the last crash haven’t been learned it could bring down the banks again too. We’ll see.

            I’d say the Govt shouldn’t intervene to rescue house owners who may well find themselves in a position of negative equity. But it will all be politically very messy with many Conservative voters who may well be ideologically opposed to government intervention wanting an exception made when they are the ones in trouble.

            Just like the bankers wanted an exception made when they got into trouble after 2008.

          • Edward2
            Posted November 22, 2015 at 9:26 am | Permalink

            As usual you are confusing the management of money supply with the creation of magic money.

            Why would house prices crash unless millions become unemployed?
            No new land.
            Millions of new customers.
            Supply way lower than demand.

      • Denis Cooper
        Posted November 21, 2015 at 12:21 pm | Permalink

        Despite what Peter says I agree that there will be a bond crash at some point, I don’t expect such low or negative interest rates to endure forever. As usual the unanswerable question is when it will happen, but I doubt that it will be soon enough to affect the one year bonds mentioned by JR in his article.

        • petermartin2001
          Posted November 25, 2015 at 1:30 am | Permalink


          You might want to look up the principle of Open Market Operations (OMO). That is where a central bank creates money and uses it to buy government debt. The only difference between OMO and QE is that QE starts with a fixed amount of money, and used to buy government debt whereas OMO money is created at whatever rate is necessary for the interest rate on new government debt to fall to a desired level.

          That’s not much of a difference IMO! But once we understand how it all works we can understand that Government has total control of all interest rates and therefore the price of bonds. It is just not possible for there to be a bond crisis or crash providing that the currency is allowed to float. In other words, providing it is not tied to gold or any other currency.

    Posted November 20, 2015 at 7:22 am | Permalink

    In effect we have all been compulsorily lending money ( actually money rifled from our pockets showing Fagin was but a rank amateur. ) to the Rt Hon Mr Osborne the Chancellor of the Exchequer for years with his low interest rate policy; his raid on Premium Bond winnings/returns from £50 to £25 was a more obvious better-pick-a-pocket-or-two gambit. Accompanied by monumental rental and house-price inflation. Characteristically the “free-market” still does not seem to have impacted at all free-marketely or markedly on energy bills. Somehow Oil and Gas as commodities are still way higher than they should be. Perhaps as consumers we should borrow from the EU to help pay our gas bills.
    Despite most massive and long term drops in commodity prices and the Pound behaving more like the US dollar than the Euro, we ought to have seen the typical low-cost discount stores renaming themselves “25p shops”. But of course we haven’t. And the Chancellor in some convoluted and cunning way best known to the Fagin School of Economics and Future Knighthoods is ripping us off 75p for every Pound we spend with his mate Biggles about to buy himself a new Fly-abite at our expense.

  4. Mike Stallard
    Posted November 20, 2015 at 7:40 am | Permalink

    The way the Germans have been treated is simply a scandal. Their D Mark which was their pride before the EU took it over with the usual blandishments and the usual promises, is now in tatters. Their immigration policy simply is mad. Mad. No, the poor asylum seekers are not Mummy with Baby – (some? are ed), as we saw on TV – warring warriors from different tribes nurturing their ancient hatreds. What was once a peaceful, prosperous country now resembles the fall of the Roman Empire.

    Last night I went to an English class which is a pretty good indicator of European pain. One Roma, several (charming) Bulgarians, a couple of Lithuanians and – no Portuguese! They seem to have dried up completely at the moment. I really do not know why this is so: we used to have lots of them.

  5. oldtimer
    Posted November 20, 2015 at 7:43 am | Permalink

    Do you know who this lender is? And were they the kind of lender susceptible to some arm twisting?

    Reply These are bonds issued to any willing buyer on the market!

    • CdBrux
      Posted November 20, 2015 at 10:35 am | Permalink

      So isn’t this just the free market at work? People making decisions they think is the best and which they may be proved right or wrong. As long as if it is wrong then they take the hit themselves.

      Reply Mainly, but it is also the ECB buying government bonds on tiny or negative yields. In the end the authorities are going to have to live with the consequences

      • Denis Cooper
        Posted November 20, 2015 at 4:55 pm | Permalink

        It’s a grossly rigged market, but so far the ECJ has ruled that the gross rigging is legal under the EU treaties. If the ECB stopped bailing out the Portuguese government by buying up its bonds, as it might have to, then the interest rates on the bonds would shoot up. They might not rise as high as they would have done if the ECB had never intervened, because it would still have a stock of the bonds which it was keeping off the market, but if it refrained from any further intervention then the prices of the bonds would fall sharply.

    • Denis Cooper
      Posted November 20, 2015 at 12:21 pm | Permalink

      Who can later sell them on to the ECB, hopefully at a small profit!

      Or, at least some of them, enough of them to keep the interest rate down, until such time as the last of four credit rating agencies joins the other three in downgrading the bonds, when technically the ECB will have to stop buying them up.

    • Lifelogic
      Posted November 20, 2015 at 12:44 pm | Permalink

      Willing buyers but perhaps with their arms twisted by government through regulations on pensions scheme investments, bank capital regulations and similar perhaps?

      • Iain Gill
        Posted November 20, 2015 at 10:41 pm | Permalink

        Correct. And the rules which mean pension pots invested in government bonds are described as low risk are clearly nutty at the moment.

  6. Gary
    Posted November 20, 2015 at 7:54 am | Permalink

    deflation is a global, it is not confined to the EU. I will believe rate rises when I see them. until then it’s just jawboning to shake bond supply loose, to monetise them. They are talking about banning cash in the UK and USA as well as the EU. If you push rates below zero people will stash their cash under the mattress. So they ban cash and give savers the finger. nothing new.

  7. Gary
    Posted November 20, 2015 at 7:56 am | Permalink

    if they do actually raise rates, I expect them to quickly reverse.

  8. Lifelogic
    Posted November 20, 2015 at 7:59 am | Permalink

    Meanwhile many businesses are being forced (by dysfunctional banking systems, a lack of real competition and daft regulations & slotting rules) to pay up to circa 15% margins even for well secured bank loans, often when the borrowers are rather a far better risk than such unsecured lending to Portugal.

    Second charge loans, even very solid ones are very difficult to find lenders for at all currently. Why indeed save money and deposit it in banks for negative real returns? Meanwhile my investments tend produce well over 10% PA, even after tax and inflation. Just a shame I cannot find some one to lend me a few million at negative interest rates to augment them.

    • Bazman
      Posted November 22, 2015 at 4:44 pm | Permalink

      The only returns of 10% are on property. You are just riding a property bubble caused by a housing shortage. Mine where 12% on that basis. Hardly entrepreneurial. If you gave a monkey a few million to invest in high end London property then they would do the same especially at the top when they are being used for tax dodging and money laundering in many cases.

      • lifelogic
        Posted November 23, 2015 at 2:54 pm | Permalink

        Nonsense lots of businesses I buy or invest in produce 10%+ returns most have nothing to do with property.

        • Bazman
          Posted November 23, 2015 at 5:20 pm | Permalink

          In which areas are business showing 10%+ returns. Or is it a secret like in which country you live in?

      • lifelogic
        Posted November 23, 2015 at 2:58 pm | Permalink

        Many small businesses are sold on 3 to 4 times profits.

        • Bazman
          Posted November 24, 2015 at 6:54 pm | Permalink

          I asked you in which areas?

  9. alan jutson
    Posted November 20, 2015 at 8:20 am | Permalink

    Clearly the magic money tree is alive and well in Portugal.

    Perhaps this is all part of a new scheme, an EU subsidy for any Country planting and growing them.

    I wonder, will global Warming help them grow faster or slower.

    Great work if you can get it I suppose, but someone will pay in the end.

    I wonder who that will be.

    Ah yes, the good old working/pensionable taxpayer.

    • Denis Cooper
      Posted November 20, 2015 at 12:23 pm | Permalink

      “Clearly the magic money tree is alive and well in Portugal.”

      That tree is in Frankfurt, which is in Germany not Portugal.

    • alan jutson
      Posted November 20, 2015 at 3:37 pm | Permalink

      Off Topic

      I see that the magic money tree is alive and well in London today.

      The electrification of the Thames Valley tracks is now going to cost 300% more than the estimate of 2 years ago.

      Up from £900,000,000 to £2,800,000,000.

      I wonder who will get the sack, without a large pay off.

      Guarantee nobody.

      The Taxpayers screwed yet again, as another government contract goes massively over budget, and its not even finished yet, so probably eventually even more than this last figure.

      “Lessons will be learnt”, Don’t make me laugh !!

      What can be more simple to cost than putting up a cable on poles from A – B along a known and existing route.

      • yosarion
        Posted November 20, 2015 at 4:50 pm | Permalink

        When the electrification was drawn up of the GWR mainline it went to Cardiff, it was then announced to go to Swansea and I think the Valley lines, Must have missed the bit about up to Oxford or was that announced this morning on the BBC as part of the plan all along.

        • alan jutson
          Posted November 20, 2015 at 8:32 pm | Permalink


          Is this like so many other projects the Government seems to place.

          The spec gets changed, but only after the contact has been placed.

          If so Why oh Why cannot they get the spec right before signing the contract, and then avoid paying a fortune for extra’s and overs.

  10. Ian wragg
    Posted November 20, 2015 at 8:22 am | Permalink

    Yesterday I was reading about the Euro bankrupting Finland. Long seen as the poster boy for the Euro.
    If Finland can’t manage within the EZ how can the basket case southern states manage
    If Portugal borrows at negative rates it can pay down all its debt in theory.
    How much are we contributing to this mad scheme either directly or indirectly

  11. bigneil
    Posted November 20, 2015 at 8:39 am | Permalink

    And the EU madness rolls on. Can’t all countries have some on the same basis? if not – why not? We could use ours to bolster the police forces, whose cuts are being used to fly in 20,000 ( and a lot more when the truth comes out) for free lives.

    • Denis Cooper
      Posted November 20, 2015 at 12:36 pm | Permalink

      You can only have this EU madness if you’re in the eurozone, and that’s the whole of the eurozone not just the distressed eurozone countries.

      If you look at how the ECB has distributed the total of €396 billion under its Public Sector Purchase Programme:


      €92 billion has been spent on German bonds, compared to only €9 billion on Portuguese bonds.

      But you have already had the equivalent UK madness, which was actually on a much larger scale at the equivalent of €566 billion just for the UK.

      • M.A.N.
        Posted November 20, 2015 at 10:35 pm | Permalink

        What is the €566 billion ? Is that total UK easing?

        • Denis Cooper
          Posted November 21, 2015 at 12:30 pm | Permalink

          Sorry, it was supposed to be £375 billion of QE in the UK converted at 70p to the euro but it seems I put 396 into my calculator by mistake. It should be €536 billion rather than the €566 billion I said.

  12. Antisthenes
    Posted November 20, 2015 at 8:44 am | Permalink

    We humans have a propensity to make bad choices and make bad decisions. At the individual level it can cause harm not only to the individual but also to others. Politicians are no different they more often than not make decisions that have seriously harmful repercussions for whole societies. Add to this the fact that there are no good people only people who sometimes do good things then it has to be wondered how we have survived as long as we have. Although we are constantly trying to devise ways to exterminate ourselves. Somehow mankind still manages despite bad decision making and not being very nice to progress and expand.

    The EU and the euro-zone are prime examples of these human traits in action. Both are ill conceived and structured and controlled by those who put ambition and ideology above doing the right thing and allowing greed, self interest and hubris to stop them from effecting needed changes.

    The right thing here is to scrap both the EU and the euro and rebuild based on democratic principles and the cooperation of the willing and sovereignly independent states. That is the right and good thing to do. Then we are humans and we only ever do the right thing when necessity forces it upon us and as yet the EU and euro-zone have not quite reached that point but one day it will.

  13. JJE
    Posted November 20, 2015 at 8:44 am | Permalink

    I assume the lenders are institutions that are being required to hold government bonds by the new prudent regulations?
    If they are people doing this voluntarily because they expect deflation then we do have problems.

  14. Edward.
    Posted November 20, 2015 at 8:45 am | Permalink

    Yes, that’s right. The lender has to pay a small sum for the privilege of lending to Portugal.

    Portugal woes? we should worry more about what’s going down here.

    ‘Tis a funny old world or, should I actually say that, it’s a world floating on a sea of funny money. Where does it all go and what in the main is [all this funny money] it used for?

    Well, all economists make best guesses meaning that, they absolutely really, really don’t know.
    Yet, these same economists indulge in a bit of casuistic sleight to roar and boasting that, “without funny money QE we’d have been stuck in the most awful, terrible, horrendous, nasty, awful, horrible [enough hyperbole?] recession!!” and it all adds up to Keynesian economics.

    So, central banks kept on printing and the ECB started doing the same, I’m not sure that the German people have really cottoned to it all yet, when they do they surely won’t be best pleased, while their attention is turned elsewhere and I cannot help but think Merkel will not be re-elected.

    Prices have stayed flat – if you believe the CPI, not that anyone does of course but we are said to be now Europe and including Britain in negative inflation territory. Indeed we are but all the significant economic factors are coalescing into a ferocious storm of almost perfect and imminent calamity.
    Central banks print money, their interest rates set at next to zero, savers and investors have nowhere to go. Thus, funny money, is pushed off into other opportunities for profit – mainly equities and property, all the world’s stock indices are over valued and the property markets from California to London are booming but ensuring local buyers are priced out of their own towns and cities.
    Meanwhile, funny money keeps a zombie economy afloat but only just here in the UK we’re still flatlining – the UK banks are still shot [broke] and will only lend to property speculators and buy to let lease landlords, mass immigration keeps them happy with 6 (migrants ed) to a bedsit ‘customers’ and what’s not to bloody well like – for slum landlords?

    Hedge funds run around trying to let loose with their £$€ trillions, attempting to merge bigger and bigger companies and meanwhile the bottom has fallen out of ‘Boom’ in China, cue slump in world commodity prices. During all of this, the KSA has decided to bankrupt Russia, American shale gas/oil production by slashing oil prices through over production and that’s what helps George ‘ever so’ to keep our UK inflation low.

    Too late in the day, the ECB tried to boost consumer demand in the EZ and the effects have been thus far, negligible to none existent.

    Property overheating, Equities over valued …. and funny money goes chasing returns in the international debt markets where rates have been on a downward spiral for a couple of years and now drifting into negative returns territory to such an extent that EVEN lending to a forever weedy basket case economy like Portugal costs you, BUT no worries the bank of the German people underwrites your [investors] risks too.

    China in a slump, the Brics piling on debts, developing world stood still, the EZ in permanent economic stasis and thanks to the € with its periphery always in crisis and no hope of redemption other than what they refuse to do [ie leave the €]. Inevitably, the major currencies of the world are ever diluted [QE] and everybody chases diminishing returns but……..waits in hushed trepidation for the US Fed Reserve to make the first move.
    When it does, we are headed for interesting times – in more ways than the literal sense. It will need a steady nerve and the fundamentals here in the UK are not good – debt piled on debt, a property crash waiting to happen and a manufacturing base being taxed out of existence while the banks are stuffed with debt and still we go on importing too bloody much – it can’t go on.

    Reply Have a nice day”! Meanwhile free enterprise delivers ever more astonishing products from better cars to iphones and ipads, from good value clothes to a stunning choice of food. It’s not all bad out there for people in the richer countries.

    • ian wragg
      Posted November 20, 2015 at 12:03 pm | Permalink

      Only trouble is John those on the periphery of Europe cannot afford these things.
      We are slowly being deprived of our savings by an voracious chancellor and the equity we have to pay for our old age.
      The next generation of ethnic English haven nothing to come and if I was them I would leave a.s.a.p.
      Only the dole dodgers and immigrants are looked after by the government. What’s going to happen when the population saturates and there is not enough ecobnomic activity to pay the welfare bill.

    • Dame Rita Webb
      Posted November 20, 2015 at 4:21 pm | Permalink

      In the richer countries eh? Did not ZH report the other day that in the US the absolute difference between sales and inventories has never been higher? JR with your MPs inflation busting pay rise, final salary pension scheme, expense account and tax payer subsidised food and alcholol you might be a bit insulated from reality on this one.

  15. matthu
    Posted November 20, 2015 at 9:14 am | Permalink

    I suppose a lot depends on who is assuming the currency risk?

    Lend in Euros and I would imagine the currency risk outweighs any interest rate risk.

    • Denis Cooper
      Posted November 21, 2015 at 12:35 pm | Permalink

      If the bonds end up in the ECB’s portfolio, as seems most likely to be the case, then nobody other than the ECB will be assuming any currency risk.

  16. Bert Young
    Posted November 20, 2015 at 9:16 am | Permalink

    Portugal, together with the other southern euro nations , is in a political and economic turmoil . These countries have failed to create a stable enough enviroment long enough to be able to look back and decide which way has more merit than another ; the EU has also failed to create enough influence in its relationship for it to be able to flag up the right direction to follow .

    Centralised disciplines have not the means to overcome the culture of the sun and differing habitats and the efforts that have been made to industrialise parts of Southern Europe have met with only partial success . This has been a signal to investors exposed to the rigorous competition of the world , to exploit only those areas that will justify risk – Southern Europe has been out of their focus . The EU has a lesson to learn from this but it is still driven by an unobtainable unrealistic political/fiscal dream .

  17. Anonymous
    Posted November 20, 2015 at 9:17 am | Permalink

    With 30% youth unemployment in Portugal why has Germany opened the EU borders to fill its demographic gap ?

    • backofanenvelope
      Posted November 20, 2015 at 10:10 am | Permalink

      The question Mrs Merkel is never asked! With high levels of unemployment in Portugal, Greece and Italy, why isn’t she recruiting workers for Germany from those and other EU countries?

      • Iain Gill
        Posted November 20, 2015 at 6:48 pm | Permalink

        Why is our government recruiting from outside the EU with high numbers of intra company visas for skills already in oversupply? Simply to depress wages and try and buy favours with their mates making money out of this movement of people.

    • forthurst
      Posted November 20, 2015 at 11:37 am | Permalink

      I was speaking to an acquaintance recently who met some young Germans in Berlin over a weekend; what he was told was that Germans throughout their education were in taught (groomed) to believe that they had inherited a unique mantle of guilt resulting from their ancestors’ unique crimes and that they had to spend the rest of time atoning for these crimes which, potentially, they would repeat because of their genetically malevolent makeup. (My precis).

      Germany is still under occupation which is why it does not act in its own interest. There are uniquely evil people in this world; they are the ones that have been promoting, through all means, the mass immigration from the third world into every country on Earth with a majority population of Northern European ancestry.

      • Dame Rita Webb
        Posted November 20, 2015 at 4:32 pm | Permalink

        That is the biggest load of cobblers about German children being indoctrinated into believing they have inherited some sort of original sin. I just imagine the sort of volksgenossen he was talking too. In the years I spent at a German university, obtaining a higher degree, I never heard.such talk

        • forthurst
          Posted November 20, 2015 at 8:28 pm | Permalink

          “In the years I spent at a German university, obtaining a higher degree, I never heard.such talk”

          As you aren’t German and was reading for a higher degree as an international student, what qualifies you to comment on the indoctrination received by ordinary Germans during their formative years in state schools?

          • hefner
            Posted November 21, 2015 at 6:54 am | Permalink

            “I was speaking to an acquaintance … blah blah blah”. If you question the indoctrination of German children, you might as well discuss the indoctrination of people on this island: “we are the best in this, and the best in that”, even when actual international comparisons show that the UK is not among the leaders, sometimes not even in the top tier.

            For example, the UK might be at the forefront of medical research, but the health system as available to the population at large is becoming more and more decrepit, the financial system might be the most effective internationally, but the consumer banking services are only rather average to poor.

          • Dame Rita Webb
            Posted November 21, 2015 at 7:14 am | Permalink

            Do you really think I was isolated from ordinary Germans? Forget about my contempories, what about the professors who were children in the ’50s and were the earliest products of the de-nazification process your friend describes? In the meantime please can you man up and tell us actually who are the “alien clique” that runs the BBC and the “uniquely evil people in this world”?

    • StevenL
      Posted November 20, 2015 at 12:39 pm | Permalink

      How could they close them? Razor wire and gun turrets?

    • Denis Cooper
      Posted November 20, 2015 at 1:19 pm | Permalink

      Interesting question, insofar as Portugal is rather similar to the eastern European countries in terms of per capita GDP. Apparently about half a million Portuguese have emigrated, but of course even if they had all gone to Germany that wouldn’t have been anywhere near enough to satisfy Merkel.

  18. StevenL
    Posted November 20, 2015 at 9:17 am | Permalink

    Maybe nobody trusts the Portuguese and other EZ banks with big deposits?

  19. Kenneth
    Posted November 20, 2015 at 9:23 am | Permalink

    It’s a mountain of paper. Even commodities are nowadays traded as paper tokens with very little of the real stuff ever moving.

    Yes the Dollar and Pound are a little less flaky, but only by a small margin.

    I’ve got no idea what is going to happen but if we start to lose faith in paper, the whole lot will come crashing down very quickly and we will have to mint coins from real metals.

  20. Ex-expat Colin
    Posted November 20, 2015 at 9:27 am | Permalink

    I suspect some lenders have identified specific assets that Portugal has and that are very valuable. Its a punt of a different kind?

    Need to know precisely what the loan conditions are…little chance!

  21. acorn
    Posted November 20, 2015 at 9:37 am | Permalink

    Tell the whole story JR, the loss will only be made if you hold those bonds to maturity, which nobody will. The bid-cover ratio was well over two; the ECB had made sure there was plenty of Euro available to buy the bonds for the bond casino to have a punt and enable Portugal to pay the milkman for another couple of months.

    Reply Or if you sell your bonds at a loss – there is no guarantee they will go up[

    • Denis Cooper
      Posted November 20, 2015 at 4:39 pm | Permalink

      Well CPI inflation in the eurozone is close to zero and Draghi wants to get it back up towards 2%, so he will keep buying up the bonds for some time yet.

  22. Vanessa
    Posted November 20, 2015 at 10:17 am | Permalink

    The same may happen here. The Bank of England has been talking about abolishing cash. Why they would do this is because interest rates may go negative – so you have to pay the bank to hold your money. “I promise to pay the bearer twenty pounds…..” is no longer valid, the £20 in your bank is now only worth £19.95. Of course sensible people would take their money out in cash which becomes more valuable than that in the bank. So the BoE abolishes cash so we have nowhere to go.

    This is financial Marshall Law where we, the people, have no control over what we have earned and saved but because the government is up to its neck in debt the money market no longer functions.

  23. CdBrux
    Posted November 20, 2015 at 10:32 am | Permalink

    Here in Belgium a few years ago there was no government formed for >500 days after an election. Things seemed to keep going just fine!

    (before anyone says so I realise this is not in any way a direct comparison!)

    • JJE
      Posted November 20, 2015 at 8:31 pm | Permalink

      Perhaps some government attention to the policing of Brussel’s suburbs might have been a good idea?

  24. Iain Gill
    Posted November 20, 2015 at 10:39 am | Permalink

    Meanwhile house prices in this country continue into the stratosphere, who is kidding who?

  25. Tim L
    Posted November 20, 2015 at 11:08 am | Permalink


    Help me out here, what’s in it for the lender?

    Is it that they get penalised for holding money in reserve therefore it’s cheaper to lend?

    Surely you wouldn’t lend money at a loss otherwise?

    Reply Presumably they think rates will become even more negative, allowing them to sell the bond on at a profit. Personally Im not rushing to buy them.

    • Denis Cooper
      Posted November 20, 2015 at 4:36 pm | Permalink

      If the ECB buys up €1 billion of previously issued Portuguese bonds from normal lenders in the same week that the normal lenders buy €1 billion of new bonds from the Portuguese government then obviously the normal lenders have not increased their total exposure to Portuguese bonds, and I expect that the ECB makes it worth their while to co-operate in keeping that “money-go-round” turning.

  26. Graham
    Posted November 20, 2015 at 1:10 pm | Permalink

    Unfortunately as the financial cabal closes in more and more of the population will be forced to lend at negative interest rates – where can you lend securely if all the institutions sign up (and why wouldn’t they).

    Yet again the ruling class herd the sheep into a corner.

  27. ian
    Posted November 20, 2015 at 3:58 pm | Permalink

    yes for a capital gain, like the BOE buys 375 billion and is making a capital gain at the moment and giving the treasury 10 billion a year in interest to bring down the debt from 100 billion last year to 90 billion pounds, if the interest rate go up above what you paid for the bonds then you are making a capital loss but you get more interest.
    The BOE cannot afford to make a loss so when the interest rate comes back up to what they paid for the bonds the government will destroy the bonds for them and have to fine the 10 billion interest for the debt.
    That’s why they do not want interest rates to go up because they could lose the support of the BOE and also because people might not buy as much with higher interest rates.

    CATCH 22

    Reply If you hold bonds and interest rates go up you lose capital on your bonds but you do not receive any more interest

  28. ian
    Posted November 20, 2015 at 5:15 pm | Permalink

    and as you know john apart from the 10 billion in interest from the 375 billion bonds, if you take out the one off sale like the mail and bank share sales and offer things last years debt would of been over 110 billion.
    Even if this year book reads 80 billion and you take away the bond interest and the one off sales which is none recurring money coming in, this years debt would be over 100 billion, so really you are going no were.
    Been on the new jet plane yet.

  29. Original Richard
    Posted November 20, 2015 at 5:59 pm | Permalink

    There must be something about these loans that we do not know about.

    Money laundering perhaps ?

    • Denis Cooper
      Posted November 21, 2015 at 12:42 pm | Permalink

      Who will end up holding them is one thing we don’t know for sure, but it seems very likely that the bonds will end up being owned by the ECB.

  30. ChrisS
    Posted November 20, 2015 at 6:56 pm | Permalink

    Never mind the Eurozone, we know the currency is heading for oblivion sooner or later.

    What worries me is the UK deficit. Pressure is growing on all sides which will prevent Osbourne from cutting expenditure as he so clearly needs to do.

    NHS spending is totally out of control despite being ring-fenced. Proof if any were needed that this sacred cow will absorb every penny that’s thrown its way and will still record a deficit ! The striking Doctors need to be told that there is no more money, period.

    Luckily the teachers and Mark Serwotka are quiet at the moment, aren’t they ?
    I wonder why ?

    But we do have the Police scaremongering that terrorists will create mayhem because of cuts. Well, for a start, let’s save some money by merging a few of the smaller police forces and get rid of half the chief constables.

    Then there’s the BBC. They are determined to make a political point by cutting well liked and high profile services rather than just getting on with slimming down. It makes my blood boil.

    The Corporation is grossly overmanned : we all know that for every outside broadcast event they send four or five times the number of staff and presenters than other channels that provide 95% as good a service.

    Remember the Olympics or that last LibDem conference where they sent more than 150 journalists to Bournemouth ? At least that figure was fewer than the 270 BBC journalists who covered the World Cup in Brazil and the 200 BBC staff who went to the Glastonbury music festival last year.

    And did we really need that Welsh bloke presenting the news from Paris all week ? No.
    Wonder what his hotel bill cost ?

    Instead of cutting back staff numbers, both in front and behind the camera, they are planning on closing services and giving up sports like F1 etc. I suppose they will be replaced with more reality TV and another load of bloody cooking programs….

    One shining example last night was the excellent Andrew Neal’s rant against ISIS.
    How did that get past the censor ? It was clearly lacking in that famous balance we are all familiar with ( you know, the way they always put up someone to argue in favour of Brexit or to make the case that Global Warming doesn’t exist ) .

    Corbyn was obviously not available to make the case for ISIS.

    Rant over. Just get on and make some really serious cuts, George.

    • Iain Gill
      Posted November 20, 2015 at 10:49 pm | Permalink

      The NHS is a national disgrace. If anyone really thinks take it or leave it crap service has any chance of survival in the modern world they need to think again. The fake analysis of whether you meet “NICE criteria” which vary wildly around the country, and where the patients have no enforceable rights even when they can prove the analysis is wrong by consultant opinion in another region, and so on. The crap crap crap GP’s allowed to earn regardless of poor ratings and patient feedback, and frankly poor results by any impartial measure. We have got to start using the mechanism that makes the free market so powerful that is empowered end consumers who can change supplier freely. Who exactly wants the crap service so common in the NHS? This little state religion is wide open for a reality check if some senior politicians were actually brave enough to say it as it is.

  31. ian
    Posted November 20, 2015 at 8:37 pm | Permalink

    That’s right you receive the coupon on the bond but no more, what you have to do is try to roll them over, that means sell the bonds and buyback at a higher coupon.
    BOE is not a bond fund manage or a hedge fund yet.

  32. Gary
    Posted November 20, 2015 at 8:52 pm | Permalink

    Why is the Fed talking about raising rates ? Maybe because the emerging markets, dependent on exporting commodities, are collapsing in the deflationary commodity spiral. They owe a combined total of $11 trillion debt. If that gets defaulted on, then the emerging markets don’t have a problem, the USA does. $11 trillion is traded every two days in the forex markets. That is too big a sum for even the Fed, with a $4 trillion balance sheet to counter. So, it seems that the Fed is hoping a rate rise will let some air out of the bond bubble, the proceeds of which will flow into commodities and levitate the emerging markets. But, if the Fed miscalculates and instead the dollar goes higher, then it gets worse. They must be very nervous.

    This pending rate rise has nothing to do with the USA economy being healthy, on the contrary, it is to save the life of the USA economy. IMO

    paraphrasing an article by Charles Hugh-Smith of OfTwoMinds blog, as reported in Zerohedge.com

    • petermartin2001
      Posted November 21, 2015 at 4:22 am | Permalink

      “Why is the Fed talking about raising rates ? ”

      It’s really nothing to do with commodities prices. If anything a rise in US interest rates will depress them further.

      The answer is simply that 0.25% is supposed to be an emergency rate. Yet that rate has held steady for the last 7 years. So there is some desire to put it back to what the mainstream would consider to be a more normal level of at least 1%. But they can’t. They know the economy will just crash again if they do.

      It will probably crash anyway. And what will the Fed do then? Abolish cash and have negative interest rates to stimulate the economy? That’s just a crazy idea but is being ‘seriously’ considered .

  33. Lindsay McDougall
    Posted November 21, 2015 at 12:56 am | Permalink

    Europe has a more difficult and urgent issue to address than this one.

    Given that citizens, businesses and institutions of Member States are under terrorist attack both internally and externally, how do Europeans defend themselves?

    Model (1) Let individual Member States erect border fences as Hungary has done and end freedom of movement between Member States. This model would allow individual Member States to have their own immigration policies.

    Model (2) Define a common European immigration policy – which would have to be restrictive in order to gain concensus – retain Shengen and freedom of movement, and create a huge external border on land and sea as the geography of Europe’s perimeter dictates. The cost of policing this would be massive.

    The UK should (and will) favour model (1). If the EU goes for model (2), then we will simply have to leave it.

  34. Ken Moore
    Posted November 21, 2015 at 8:53 am | Permalink

    Money seems to have become completely detached from the real economy of goods and services – borrowing is just a series of claims on future output that now cannot ever be re-paid. I have no figures but I suspect the amount of new money created is grossly out of proportion to the size of the world economy.

    The value of money is decided by the markets when interest rates are set – with these at zero I believe we are at a very real risk of money losing it’s value.

  35. agricola
    Posted November 21, 2015 at 2:58 pm | Permalink

    Well we all lend to UK banks , receive nothing in return and at times pay for the privilege. If our government do the same for Portugal it is only par for the course in the crazy world we live in.

  36. Lindsay McDougall
    Posted November 22, 2015 at 6:16 pm | Permalink

    I wouldn’t personally want to lend to either Portugal or Germany at a negative interest rate but what concerns me is ensuring that my Government is not forced to lend to an EU Member States at a negative rate. In that event I, as a taxpayer, would be forced to contribute. This further emphasises the importance of not joining the Eurozone.

    Portugal is a traditional UK ally and I would like to help, but only if it leaves the EuroZone. The UK should be defending its interest by persuading as many EuroZone Members as possible to leave. If we are outside a European SuperState, we want the SuperState to be as small as possible.

  • About John Redwood

    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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