Sovereign debt bubble thread

[Neil]

Doesn't mean you don't have to borrow sometimes.  Despite huge gold and silver mines Spain defaulted a couple of times during it's empire.

Spain was constantly involved in ruinous wars.

Thank God we dodged that bullet.

Indeed.  The US has engaged in a couple of cheap, limited wars, but that's about it.

[MadImmortalMan]

Bizarro-World.

Good PIIGS: Portugal, Ireland, Greece

Bad PIIGS: Italy, Spain

Name   Level   Change   Time
Portugal   964   -22 (-2.3%)   17:30
Italy   392   27 (7.3%)   17:30
Ireland   835   -11 (-1.4%)   17:30
Greece   1713   -31 (-1.8%)   17:30
Spain   431   12 (2.9%)   17:30

[MadImmortalMan]

Eurobond securitization continues as Italy steps up the the trough. They better settle on something convincing tonight.

ECB to protect Europe by buying bonds

The European Central Bank is expected to signal it is stepping into the eurozone debt crisis on Thursday by reopening its purchases of government debt, amid fears the turmoil will claim the economy of a nation that is "too big to bail".
Officials on Wednesday night said the ECB's monthly meeting was expected to see a reversal on the buying of sovereign bonds after 18 weeks of staying out of the markets, because of an EU institutional vacuum that threatens to drag down Italy and Spain, the region's third and fourth-largest economies.

With EU officials scrabbling to fine-tune changes to allow the eurozone's €440bn (£384bn) bail-out fund to intervene in the markets, central bankers are expected to reluctantly accept the precedent of allowing ECB bond buy-backs in May 2010.

Measures allowing the European Financial Stability Facility (EFSF), the bail-out fund created last summer, new powers to buy the bonds of struggling countries were agreed at an emergency euro summit on July 21 in an attempt to protect Italy (whose public debt and bank exposure is shown in the interactive graphic above) and Spain.

However, legally changing the basis of the EFSF and ratifying the changes in 17 eurozone countries, where the expanded fund's role is controversial in German, Dutch and Finnish parliaments, could take weeks or even months, leaving a dangerous vacuum.

"We're watching the ECB which, unlike the eurozone, can intervene now and build a bridge until the EFSF can take up its new role in the autumn," said an official.

Meanwhile, European Commission President Jose Barroso urged governments to quickly approve the beefed-up fund, warning of market fears leaders have not found a "systemic" solution.

The need for a buyer of last resort is intensifying as the yield, or implied interest rates, on Italian and Spanish government debt sticks above the 6pc mark, well into the danger zone. Markets spooked by the recent threat of a US default have now returned their focus to the eurozone crisis, amid fears over a global economic slowdown which will make struggling nations' debts even harder to support.

Italy and Spain are seen as too big to rescue under the current system, which has already bailed out Greece (twice), Ireland and Portugal.

Silvio Berlusconi, the Italian prime minister, on Wednesday night insisted markets were misreading Italy's "solid economic fundamentals" after Rome's main FTSE MIB index closed down 1.5pc, leaving it 27pc off its recent peak in mid-February.

However, Italy, with a debt equivalent to 120pc of GDP, is on an unsustainable path and "bound to default" on its obligations, while Spain is better placed but may still get dragged down in the turmoil, according to forecasts from the Centre for Economics and Business Research. The think-tank is now "pessimistic" about the euro's survival. If one country defaults other euro members will face higher borrowing costs, making devaluing their currency by leaving the monetary union more attractive, it said.

[Caliga]

My sovereign debt ETF has done extremely well over the past week or so.

[MadImmortalMan]

Germany says Italy is too big for EFSF to save and doesn't want in on a longer term bailout. The world will collapse. My capstone thesis is coming true.

[Zanza]

Wasn't it always clear that Italy is too big? Germany and France have rather precarious fiscal positions too. If Italy goes down, the rest of the Eurozone will go down.

[Ancient Demon]

Wasn't it always clear that Italy is too big? Germany and France have rather precarious fiscal positions too. If Italy goes down, the rest of the Eurozone will go down.

First Europe, then the world.

[MadImmortalMan]

Might as well get it out in the open?

DJ Irish Minister:EU Debt Forgiveness Inevitable In Future -Report
07 Aug 2011 - 10:47

DUBLIN -(Dow Jones)- Pat Rabbitte, Ireland's Minister for Communications, Energy and Natural Resources, believes it is "inevitable" the European Union will allow some form of debt forgiveness to ease Ireland's crisis, the Irish Mail on Sunday reports.

"My personal view is that an element of debt forgiveness down the road is likely to become inevitable and I think in the meantime the leadership in Europe has to apply itself to the fault lines that we are exposed to in the architecture of the euro," the newspaper cites him as saying.

Rabbitte is a senior politician in the Labour Party, the junior partner in the coalition government that swept to power in March. The coalition had pledged to negotiate a better deal on a EUR67.5 billion bailout loan agreement the Irish authorities struck with the EU, International Monetary Fund and European Central Bank in November.

"The terms foisted on us in the deal between the EU, ECB and the IMF and the previous government were oppressive," Rabbitte tells the newspaper.

Euro-zone-wide solutions are now needed to solve Europe's debt crisis but he believes that the ECB will block any options for a U.S.-style quantitative easing.

"It would not be contemplated by the ECB. The ECB is very much influenced by the requirement to keep inflation under control. It may be interesting to see as the Obama thing unfolds, but I don't see the ECB giving that sanction in Europe," he says.

Last month, an EU leaders' meeting agreed to cut the near-6% interest rate Ireland is paying its European bailout lenders for their loans. Amid a severe banking crisis, Ireland's banks continue to require large amounts of short-term funding from the ECB to remain open.

The Irish government still aims to return to some sort of market funding next year. The yields on its debt paper remain at elevated levels even as the ECB bought more of the country's debt paper on secondary markets last week.

In July, Moody's Investor Services downgraded Irish debt into junk territory. However, on Friday, Standard & Poor's Corp. maintained its investment grade rating on Irish government debt. S&P forecast Irish debt will peak at over 110% of GDP in 2013 and fall to 103% in 2015, as the government caps the costs of rescuing its broken banks.

It said the direct bank rescue costs will now be no more than the EUR64 billion, or 41% of Irish GDP, already identified in recapitalization costs.

[Zanza]

Germany is now demanding suggesting that the other Eurozone countries amend their constitutions with balanced budget rules. Italy has already announced that it will do so.

[DGuller]

[MadImmortalMan]

I have to admit I'm softening on the budget amendment idea. I'm not quite as knee-jerk against it as I was a couple weeks ago.

[Cecil]

Well we´ve had it (sort of) the last 15 years and have had lesser economical problems after than we had before.

[The Minsky Moment]

I have to admit I'm softening on the budget amendment idea. I'm not quite as knee-jerk against it as I was a couple weeks ago.

Get knee surgery and get back int he game.

[Zanza]

facepalm

Switzerland has been quite successful with their balanced budget act. Germany has added a balanced budget article to its constitution and will not be allowed to make more than 0.35% of GDP in new debt after 2016 - unless there are natural disasters or economic crises.

[The Brain]

facepalm

Switzerland has been quite successful with their balanced budget act. Germany has added a balanced budget article to its constitution and will not be allowed to make more than 0.35% of GDP in new debt after 2016 - unless there are natural disasters or economic crises.

Such as making more than .35% in new debt.