France, Germany Pressure Portugal to Take Aid; No Gov't in Belgium for 210 Days; Private Debt Placements in Portugal; Is China the Red Knight Savior?

Portugal is the spotlight du jour in the sovereign debt crisis. Belgium is not far behind. On Saturday Reuters claimed Germany and France want Portugal to accept aid, citing Der Spiegel.

Germany and France want Portugal to accept an international bailout as soon as possible in order to prevent its debt crisis spreading to other countries, German magazine Der Spiegel reported on Saturday.

Without citing its sources, the magazine said government experts from both European heavyweights were concerned Lisbon will soon not be able to finance its debt at reasonable rates, after its borrowing costs rose at the end of last year.

Berlin and Paris also want euro zone countries to publicly commit to do whatever it takes to protect the bloc's single currency, including topping up a 750 billion euro ($968 billion) rescue fund if necessary.

Absurdity of "Stopping the Spread" Statement

This headline is making the rounds but nearly a day later I still cannot find anything about it in Der Spiegel.

Mish Note: See Addendum for Der Spiegel German reference and a reader's comments

I do have a few quick comments.

Note the absurdity of the statement "Germany and France want Portugal to accept an international bailout as soon as possible in order to prevent its debt crisis spreading". The fact that Portugal needs a bailout is 100% proof the crisis has spread. So are rising sovereign debt yields across the board relative to Germany. The only exception now is France.

Is this another Maginot line?

Private Debt Placements

Please consider Portugal making private placement of bonds

Portugal is in the process of making a private placement of bonds to diversify its investor base, the finance ministry said on Friday without giving any details of the operation. "I can confirm that an operation is taking place but we will make no comment about the buyer," a spokeswoman at the finance ministry told Reuters when asked about market talk that China could be buying Portuguese bonds.

Assuming the story is true (once again I have no reason to doubt it in spite of a lack of details), the only conceivable private placement at this moment is China.

The lack of details this weekend suggests an attempt to paper over the crisis with bullsweet, hoping something will stick. It won't. Is Belgium next?

Belgium Without Government For 210 Days

Inquiring minds note 200 days on and still Belgium has no government

30/12/10 16:35 CET

[Belgium has] been without a full-time government for 200 days. It overshadows the 194 days it took to resolve a 2007 political deadlock.

The world record is currently held by Iraq, which had no permanent government for 290 days.

The New Flemish Alliance won the most seats in June’s elections. Party leader Bart De Wever wants greater autonomy for Dutch-speaking Flanders. But the head of Wallonia’s French-speaking Socialists, Elio Di Rupo, opposes any such move.

As the two struggle to strike a deal, Prime Minister Yves Leterme has stayed on as the head of a caretaker government.

No Government In Sight

The Atlantic Sentinel reports In Belgium, Still No Government in Sight

After numerous rounds of negotiations between the victors of this summer’s federal elections, Belgium is still without a government. The two major parties, the Flemish nationalists and the French speaking socialists, have been gridlocked for months. Unless they manage to find common ground in the weeks ahead, the country may have to call another election.

No one likes the prospect of new elections as they are likely to strengthen each of the largest parties in the two language areas of Belgium, rendering future compromise nigh impossible. The New Flemish Alliance, which favors gradual secession of the Dutch speaking part of the country, has been adamant so far in demanding increased autonomy for the region. Walloon socialist leader Elio Di Rupo previously offered the Flemish financial reform, including a transfer of competences from federal to regional governments worth some €15 billion. But the nationalist balked at parallel requests to give Brussels—an independent, bilingual region within Flanders of which the population is largely French speaking—a fixed subsidy of €250 million to alleviate part of its massive debt burden.

Whereas Flanders is the economic powerhouse of Belgium, the south remains impoverished and subject to high unemployment rates. With the socialists in power, the Walloons nevertheless enjoy a welfare state for which the Flemish say they are footing the bill.



The lack of political stability may well harm Belgium’s credit rating in the near future. As one of the most highly indebted countries in Europe with government spending equaling almost 50 percent of GDP, Belgium’s ability to borrow is pivotal.

Belgium’s CD&V Rejects Interim Government Proposal

Bloomberg reports Belgium’s CD&V Rejects Interim Government Proposal

The CD&V, Belgium’s Flemish Christian Democratic party, rejected a proposal from Didier Reynders, the country’s finance minister, for a short-term government to address the country’s budget deficit, the Belga news agency said, without saying where it got the information.

The party wants negotiations to continue on forming a government that is “endowed with full responsibilities,” Belga said.

Belgium cannot put aside its differences to tackle the debt crisis. Will the debt crisis wait? I think you know the answer to that.



Link in case above video does not play: 200 days and still no government

No Red Knight to the Rescue

The International Business Times asks and answers an important question: Can China save euro? Answer is ‘no’

China has been shopping for European sovereign debt for some time. The so-called 'red knight' for the struggling Eurozone periphery has come in with timely aid for Greece, and offered support to Ireland and Spain.

On Thursday Spanish daily El Pais reported that China has offered to purchase Spanish sovereign debt worth about $7.89 billion. There is euphoric expectation that China, armed with its $2.6 trillion reserves, will emerge as the ultimate white knight for Europe. Is that belief founded on facts and substantiated by strategic thinking?

Analysts at Capital Economics have said "China is unlikely to be able or willing to do much to solve the debt crisis in the euro-zone," even though the popular perception is that it will.

"China’s leaders naturally want to be polite to foreign hosts and visitors, but their actions frequently fall short of the expectations raised by their words," write Julian Jessop, chief international economist and Mark Williams, senior China economist, in a note.

Significantly, the analysts also point out that eurozone's difficulties go beyond finding investors to buy sovereign bonds each month.

The willingness of China or anyone else to buy sovereign bonds will not alone see the region through its more complicated systemic difficulties.

Ever since the peripheral debt crisis began to threaten the common currency and the union, China has offered support to efforts to stabilize the eurozone.

China reiterated the commitment on Tuesday saying it supported Europe's efforts to deal with the peripheral debt crisis and said Beijing will not cut down its holdings of European sovereign bonds “EU members have taken a number of steps to actively respond to the sovereign-debt crisis,” Chinese Vice-Premier Wang Qishan said at the two-day EU-China High Level Economic and Trade Dialogue which concluded in the Chinese capital on Tuesday.

“We hope these measures will quickly produce results and lead to a steady recovery of the EU economies,” Wang added.

Five-Day Euro Chart


click on chart for sharper image

What's China going to do? Buy it all? Then what?

Addendum:

Reader Moritz comments ...

Hi Guys

The original "Der Spiegel" article (in German) is here: http://www.spiegel.de/wirtschaft/soziales/0,1518,738457,00.html

The big impact is Germany and France are thinking about raising the EU debt guarantee from 750 billion Euro to basically "unlimited".

Germans are raging in the comments section, since it seems unthinkable that we might guarantee our neighbours' debts in an unlimited way.

What's even more disturbing is that at the moment around 70% of the Germans want to leave the Euro. But, this is not being represented by the parties in parliament.

From far right conservative CSU to far left semi-communist LINKE *every* party in parliament is pro Euro. People are very angry and upset because they feel ignored by the politicians.

Now we have a few votes coming up on state level in the next months. It seems that Merkel's conservative party will fail at these elections. Liberal democrats have a high probability of failing to get into the parliaments at all. It might be very well the case that Merkel will be overthrown by June. This is not a conspiracy theory, it's mainstream media thought.

Actually that comment is slightly inaccurate in one respect. Only 30% would get into the Euro today if they had to do it over again. I cannot speak for the rest of the translation. I assume it is accurate.

For a look at German court cases and the German sentiment numbers against the Euro, please see EU Commission Plans Haircuts on Bank Debt; Greek Yields Hit New Record; China Buys Spanish Debt; German Courts to Decide Bailout Constitutionality

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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