Europe's never ending sovereign debt and default problems are rearing their ugly head once again. Just a rumor hitting the rounds that Portugal is being pressed to take a bail out, even when those rumors are denied was enough to send their bonds reeling. As it was the European Central Bank has to buy Portugal's bonds.
The ECB intervened to buy government bonds on the secondary market.
"They're buying five-years and 10-years in Portugal, whatever people are offering really," one trader said.
Another trader said the ECB appeared to be buying Greek and Irish bonds too. EU sources say the central bank has not yet bought Spanish government debt.
There is a domino theory that if Portugal is the next nation to be bailed out and saved from sovereign debt, Spain will assuredly also go south. Spain is a much larger economy. Ireland & Greece have already taken bail outs. It is assumed Portugal is next in the domino falling list. Contagion is also assumed when it gets to Spain. Contagion means the PIGS sovereign debt crisis will affect the United States and other nations outside of Europe.
WHEN I wrote in The Irish Times last May showing how the bank guarantee would lead to national insolvency, I did not expect the financial collapse to be anywhere near as swift or as deep as has now occurred. During September, the Irish Republic quietly ceased to exist as an autonomous fiscal entity, and became a ward of the European Central Bank.
Morgan Kelly is an Irish Economist who is predicting an 80% drop in Ireland home prices. He estimates their own bank bail out is sinking their nation:
This €70 billion bill for the banks dwarfs the €15 billion in spending cuts now agonised over, and reduces the necessary cuts in Government spending to an exercise in futility. What is the point of rearranging the spending deckchairs, when the iceberg of bank losses is going to sink us anyway?
What is driving our bond yields to record levels is not the Government deficit, but the bank bailout. Without the banks, our national debt could be stabilised in four years at a level not much worse than where France, with its triple A rating in the bond markets, is now.
It seems Ireland is basically insolvent. All hail the banks.
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