The Financial Times reported earlier today that bailout worries exist on the sovereign debt for at least three European nations. Greece, Portugal, and Ireland remain in a precarious situation while functioning at very high debt to GDP ratios.
Portuguese finance minister Fernando Teixeira dos Santos warned that the “risk is high” the country will have to turn to the international community for financial assistance. Dos Santos said Portugal’s situation is not the same as that of Greece, but because of their membership in the EU, the countries are getting lumped together, as are their budget problems. He commented, “Markets look at these economies together because we are all in this together in the eurozone.”
Eurostat analysts, who are the statistical agency for the European Union forecasted a much higher-than-expected budget deficit for Greece this morning. George Papandreou, the Prime Minister of Greece said during a speaking engagement this morning that he thinks Germany’s push for treatment of indebtedness could “break the backs” of some European countries, especially Portugal and Ireland. The finance minister of Greece has been prominent in the news lately, first criticizing Ben Bernanke’s moves at the US Central Bank, then taking aim at European nations and his concern the German population may end up footing the bill of bailouts. Ireland’s predicament seems to involve a measure of national pride in refusing to ask for a direct bailout of the country’s finances.
Andrew Garthwaite, an analyst at Credit Suisse commented, “We think that eventually the EFSF will be accessed (but not by Spain). Spain’s problems are “sustainable,” unlike the other three. Garthwaite went on to say that “there is a near-zero chance of core Europe walking away from peripheral Europe.” He justifies this by saying that the cost of doing so might be much higher than bailout–on the order of $600 billion. The bailout will reduce borrowing costs to “sustainable levels,” Garthwaite, and the implied default rates for Ireland and Portugal of 36% and 30%, respectively, are too high.
Bond traders at Goldman Sachs (NYSE: GS) and trading desks around the world are bound to trade with caution in the coming months. After the Argentina collapse of the late 1990’s turned investors off to sovereign debt for a while, the ongoing issues in Europe may prompt a return of those fears and aversions.
