More Risk From Portugal

April 4, 2013 Leave a comment

The euro area has had a rough few weeks: Cyprus agreed a bailout program that will decimate its economy, Italy’s Pier Luigi Bersani, the Democratic Party leader, failed to put together a government, borrowing costs for businesses in the peripheral countries continue to rise, unemployment reached record highs, and purchasing manager indices across the region greatly underperformed expectations.

There may be one more piece of bad news to add to the pile before the week is out: Portugal’s budget for 2013 may fall apart, and with it the Portuguese government. Read more of this post

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Cyprus Shows Trust in ECB is Misplaced

March 26, 2013 3 Comments

Ever since European Central Bank President Mario Draghi said last July that the bank will do whatever it takes to preserve the euro, complacency has pervaded Europe’s single-currency area. Markets have weathered potential crises in Italy and Spain with surprising calm, secure in the knowledge that the ECB will save the day if needed.

This was always a false assumption, as events in Cyprus have made clear. There are significant limitations to the support the ECB is willing or able to offer, even to such a tiny island economy whose needs are easily affordable. Read more of this post

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Cyprus’ Four Options for Avoiding Collapse

March 20, 2013 2 Comments

The only thing worse than Cyprus accepting the rotten bailout program that European policy makers agreed on late last week was Cyprus rejecting it. Yesterday, the parliament voted decisively against the terms of the bailout, with 36 members opposing it, the ruling party abstaining and not a single vote in favor. Read more of this post

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Euro Area Ruins its Progress with Cyprus Deal

March 18, 2013 Leave a comment

There’s nothing like having part of your savings account confiscated overnight to make you feel that your money isn’t safe.

That’s what depositors in Cypriot banks awoke to on March 16, when they found their accounts frozen for at least five days to avoid panicked withdrawals. Read more of this post

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Fancy Footwear and Austerity Won’t Save Portugal

March 7, 2013 5 Comments

Anyone still in need of proof that austerity isn’t fixing the euro area’s debt crisis should visit Portugal. Read more of this post

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Don’t Believe Spain’s Deficit Numbers

March 4, 2013 Leave a comment

Last week, Spanish Prime Minister Mariano Rajoy gave investors and analysts a pleasant surprise, announcing that his country’s budget deficit had fallen to 6.7 percent of gross domestic product in 2012, far below the European Commission’s estimate.

Unfortunately, the lower number is probably wishful thinking on Rajoy’s part, because he excluded the costs associated with recapitalizing Spain’s banks. The European Commission’s estimate was much higher, at 10.2 percent of GDP, because it included them. Read more of this post

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Italy Votes for Chaos and the Euro Crisis Is Back

February 26, 2013 1 Comment

Italy’s parliamentary election could not have gone worse for the country or the euro area.

It is now possible that in the coming months the currency zone’s third-largest economy will need a bailout from international creditors, at a time when Italy will have no government in place to ask for, or negotiate, a rescue. In case you had any doubts, the euro-area crisis is back. Read more of this post

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