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Saturday, April 16, 2011 11:36 AM

Germany Floats Greek Restructuring; Finland's Anti-Euro Party Poised to Win Record Support; Spain on Deck

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Greek 2-year government bonds soared to 18.5% on Friday in the wake of statement from German officials about the possibility of restructuring of Greek debt. In Finland, the "True Finns" an anti-Euro party is expected to win record support in an election this weekend, and in Spain, denial still runs deep about the possibility of a Spanish bailout.

Greece 2-Year Government Bond Yield Hits 18.5%

Germany Floats Greek Restructuring

Bloomberg reports Germany Floats Greek Restructuring as Papandreou Pushes Cuts

German officials are putting Greek debt restructuring on the table over declarations by leaders in Athens and policy makers elsewhere in Europe that Greece will make good on its obligations.

German Deputy Foreign Minister Werner Hoyer said yesterday a Greek restructuring “would not be a disaster.” The previous day, Finance Minister Wolfgang Schaeuble was quoted by Die Welt newspaper as saying “further measures may have to be taken” if Greece flunks a June audit.

Chancellor Angela Merkel’s deputies are raising what has been a taboo issue for European officials -- a restructuring by a euro member -- to show its unwillingness to contribute to more bailouts, Holger Schmieding, chief economist at Joh. Berenberg Gossler & Co. in London, said in a phone interview. Germany is the largest contributor to European Union rescue funds, which have been tapped by Ireland, Greece and Portugal.

“This is part of a gambit in negotiations,” Schmieding said. “If Greece doesn’t get access to markets, the funds will probably run out sometime in 2012. That, I think, is the German message: Don’t count on us to add more money.”
Finland's Anti-Euro Party Poised to Win Record Support

Please consider Finland's Anti-Euro Party Poised to Win Record Support in Weekend Election

Finland’s anti-euro bloc is set to win record support at the weekend’s election, forcing the country’s biggest parties to take a tougher stance on bailouts as they try to woo voters tired of rescuing fiscal failures.

Support for political groups opposed to euro-area rescues was 47.3 percent in the latest poll by Helsingin Sanomat, published April 12. The True Finns, whose leader Timo Soini says taxpayers in the Nordic country shouldn’t have helped bail out Greece or Ireland, has seen its support soar to 16.9 percent from 6.9 percent a year ago.

Finns will vote on April 17, 11 days after Portugal became the third euro member to seek a bailout and as speculation grows that Greece may be unable to honor its debts. Finance Minister Jyrki Katainen assured voters last week Finland will insist Portugal’s “medicine” is “tougher,” while Prime Minister Mari Kiviniemi on April 13 called for “harsher measures” than those Portugal’s parliament rejected in March. Both politicians want to stop voters backing the True Finns’ leader, who says countries that can’t pay their debts shouldn’t be in the euro.

“The Portuguese crisis was a godsend for Soini,” Tuomo Martikainen, professor emeritus in political science at the University of Helsinki, said in an April 13 interview. “Greece, Portugal and the whole debt crisis brought the underlying anti- European sentiment to the fore.”

The leader of the party that wins the most seats in the 200-member legislature traditionally starts talks to form a coalition government. The True Finns will seek a majority that allows them to block the euro region’s bailout mechanism, party member Soini told Finnish broadcaster YLE on April 7.

“Should Finland decide to abstain from participating in a further upsizing of the” bailout facilities or oppose aid to Portugal, “this would cause serious political ramifications in the euro area,” Barclays Capital analysts Francois Cabau and Frank Engels wrote in a note yesterday. “It would set a precedent in that the principle of solidarity would have failed.”

Finns may resist the urge to cast a protest vote as the future of the euro region hangs in the balance, said Sixten Korkman, managing director of the Finnish Business and Policy Forum EVA.

“Finns are rightly asking why they should put their tax euros into saving Greece, which lived above its means for a long time, or Ireland, whose banks lent recklessly,” Korkman said in a phone interview yesterday. “Still, many understand that while the anger is justified, it would be dangerous to leave Portugal to fend for itself.” That means “we’re not going to have a government that’s hostile to the European Union,” he said.
Spains' Unemployment 20.3% and Set to Rise

ForexYard reports Spain unemployed could reach 5 mln-labour minister
The number of Spaniards out of work could reach a record high of 5 million if the active workforce continues to rise, Labour Minister Valeriano Gomez said in an interview published on Saturday in Expansion.

Spanish unemployment is more than double the European Union average at 20.3 percent and has risen by around 2.5 million to 4.7 million since the beginning of the economic crisis in the first quarter of 2008.

"Whether or not we rise above the 5 million level really depends on the active workforce," Gomez told Expansion.
Is Spain Too Big to Bail?

Nouriel Roubini says Greece to Restructure Debt, Spain May Seek Aid
“The issue of Greece is not whether there will be debt restructuring, but when it will be done, and whether it will be an orderly market-oriented debt exchange or disorderly like in Argentina,” Roubini said today at a conference in Almaty, Kazakhstan’s financial center. “One can make the same argument for Portugal’s government and Irish banks.”

The EU aims to reach an agreement on the aid package for Portugal on May 16, three weeks before the country’s June 5 election, which was prompted by the resignation of Prime Minister Jose Socrates after parliament rejected his deficit- cutting plan. The nation requested emergency aid last week.

Spain, the currency bloc’s fourth-largest economy, is trying to restructure its savings banks after a property-market slump left many with surging bad loans. Twelve lenders need to raise as much as 15.2 billion euros to meet new minimum capital standards set by the government.

“When Greece failed, they said Portugal is different,” Roubini said. “Now they say Spain is different. I am not sure Spain is different.”

Spanish Finance Minister Elena Salgado said April 8 that a financial bailout is “completely out of the question.” The government is trying to complete a series of legislative overhauls and asset sales to save its finances.

“Spain is a country too big to fail but also too big to be saved,” Roubini said. There’s a “risk” of contagion spreading to Spain, and “that would be negative for financial markets and the global economy.”

“Higher interest rates are strengthening the euro” and “that’s going to damage the competitiveness of the periphery of the euro zone that’s already in trouble,” Roubini said. “My worry is that the ECB is tightening too much, too fast, too soon.”
Roubini expresses concerns that I have stated on many occasions. Certainly the ECB's "One Size Fits Germany policy does not and cannot possibly work.

Moreover, with Spain's unemployment over 20% and likely to rise, how much more austerity will Spanish citizens take for the sole purpose of bailing out German, French, and UK banks?

Mike "Mish" Shedlock
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