We note increased danger for private investors as a possible Greek-style collapse looms in Portugal. Recalling how the Euro is supported by German's strength we cannot help but wonder what new rabbits are left to be pulled from the EU hat. Portugal and the other PIIGs must either triumph or fatally fail in their endeavor to balance the books and still avoid revolution. Middle ground has long since disappeared. Lawlessness and revolutionary agitation can quickly overwhelm any government and paralize the ability to craft rational solutions. This appears to be the path ahead unless an alternative can be found. If private investors are slaughtered on the altar of the bonds, the ensuing investment retraction will likely cascade with increasing intensity.
From The Telegraph: If the Greek haircut formula is ultimately extended to Portugal, private creditors can expect to lose everything. The EU and the International Monetary Fund already own most of the debt, reducing everybody else to cannon fodder status. Mr El-Erian said EU leaders are deluding themselves if they think they have solved Greece’s problems. “The Greek package is going to fall apart quickly. Bridges built to go nowhere can collapse at any time,” he said. The IMF said in its latest report that Greece remains “accident prone” and may need further help and more debt haircuts if the economy “fails to respond rapidly enough to reforms”.
From Guardian: Thanks to windguybelow for highlighting a report that billionaire hedge fund manager John Paulson is shorting German bonds because he believes the eurozone crisis will get much worse in the months to come. If it gets as far as Germany, it surely really is all over. The Financial Times story is here (but may require a sign-in.) (Mind you, Paulson's funds made steep losses last year even if his long term track record is pretty good.....) Another unexpected consequence of the financial crisis - a museum in Italy has begun burning an artwork a day to protest against its lack of funding. Read John Hopper's report here, including the reaction of the first artist to have their work destroyed.
Private creditors may lose everything
From Chicago Tribune: Some investors remain concerned that Portugal will have to follow Greece in seeking a further bailout that could involve losses for private sector creditors. The IMF quoted its new mission chief for Portugal, Abebe Selassie, as saying that "the main risk is that the recession turns out deeper than projected", partly due to a mild recession in the euro zone where Portugal sells most of its products. "In that case, we think that chasing after fixed nominal deficit targets may not be the best policy,"
From Best Growth Stock: “In Spain there is no growth, as in Italy. When the euro crisis re-sharpen a bit, both countries inevitably fall into the same situation as Portugal,” he said. With regard to Greece, Egan said the current debt restructuring “will not be, surely the last.” “The unpleasant reality is that despite the many aid packages, Greece will continue on a pile of debts that may not ultimately pay. Although I do not have it in short, all that can help here is another removed. I’m afraid Investors finally have to accept losses of up to 95%, “he said.