Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Aside from the turmoil in Egypt which has crude oil futures back above $100 for the first time since May 2012, there are some issues developing in Greece and Portugal. Since Draghi’s infamous “whatever it takes” comments last summer Europe has been completely pushed to the side as the belief that central bankers are omnipotent lives in our current belief system. But it is summer time and we have an annual Euro crisis each summer for years on end so we’ll see if this is a minor flare up or something that has some legs. Honestly when you read the mounts involved such as for Greece (8B euros) it is bemusing in relation to how much the U.S. and Japanese central banks feed into the system each day/month/quarter/year. The Greek “crisis” could be solved with 3 days of Fed POMO – and I did the calculation yesterday; the Fed spits out the entire Greek GDP three times a year with its QE. We have simply become numb to figures such as $85B as if it it is $500M.
Via Reuters:
- A teetering Portuguese government has underlined the threat that the euro zone debt crisis, in hibernation for almost a year, may be about to reawaken. From Greece to Cyprus, Slovenia to Spain and Italy, and now most pressingly Portugal, where the finance and foreign ministers resigned in the space of two days, a host of problems is stirring after 10 months of relative calm imposed by the European Central Bank. If his government does end up collapsing, as is now more likely, it will raise immediate questions about Lisbon’s ability to meet the terms of the 78-billion-euro bailout it agreed with the EU and International Monetary Fund in 2011. Portuguese 10-year bond yields spiked up to eight percent on Wednesday with reports of further ministerial resignations throwing the coalition government’s future into peril.
- Portugal had been held up as an example of a bailout country doing all the right things to get its economy back in shape. That reputation is now harder to sustain and even before this latest crisis, the International Monetary Fund reported last month that Lisbon’s debt position was “very fragile”. Coming soon after the near-collapse of the Greek government, which has been given until Monday to show it can meet the demands of its own EU-IMF bailout, the euro zonemay be on the brink of falling back into full-on crisis.
- EU officials have been at pains to talk down any unrest, buoyed by the tranquility in financial markets since European Central Bank President Mario Draghi made good on his pledge last summer to do whatever it takes to protect the euro via a bond-buying program. EU officials quietly acknowledge that all is not well and that any number of problems could throw the region back into turmoil. “There are always issues simmering under the surface,” said an EU diplomat who has been dealing first hand with the crisis since it erupted in Greece in early 2010. “It’s far from over. The immediacy may have ebbed away, but I think we’re all aware that under the surface, there’s still a lot of stuff than can come back to bite us.”
- As for Greece….there are some suggestions that the EU and IMF may refuse to pay at least some of the 8.1 billion euros bailout tranche on offer and dribble it out instead in order to focus minds in Athens. Anything more dramatic would be risky since Greece faces big bond redemptions next month and nobody wants a default.
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