Debt Workout - part 20
When are falling interest rates bad news for an overleveraged borrower?
When they indicate that the borrower is absorbing the entire cost of the bad borrowing/lending decisions and that creditors will not take their fair share of the losses.
With OT yields falling to 5.82 per cent, 5 year Portugese paper is prices the tightest seen since December 2010, when the financial crisis was spreading from country to country.
It imay be too good to be true, it is certainly too good to be sustainable.
In fact, there are none so blind as creditors who will not see...
The creditors seem not to see the agony of the debtors forced to absorb the entire cost of their bad lending decisions, nor care much as long as ample ECB funding allow them to receive payback on their impaired loans at par.
Portugal's 2013 budget targets a deficit of 4.5% of GDP (the creditors seem to allow the UK to get on with 8%). Among other drastic austerity measures, it calls for a special 4% income tax surcharge, which applies to all incomes above minimum wage of €485/month. Doesn't leave much to feed, clothe and house a family of four.
How much further can you squeeze the foolish borrowers? Quite a bit, the foolish creditors seem to think. After all, Portugal's unemployment rate is "only" 16%, much lower than the 26% in Spain and Greece.
The IMF forecastas that Portugal’s economy will shrink 1.0 per cent next year. That compares with an estimated contraction of 3.7 per cent this year and a 1.7 per cent fall last year.
And Portugal is making a valiant effort to rebalance its extenal trading accounts, with little help from its EU partners. INE, Portugal’s Office of National Statistics show August exports ring 13.7 per cent, year on year, thanks to increasing exports to non-EU trading partners which jumped 37.3 per cent.
Mariana Abrantes de Sousa
PPP Lusofonia
Fonte: http://ftalphaville.ft.com/2012/10/12/1207141/portugal-maybe-on-the-mend/#respond
Debt Workout 101 parts 1-19 http://ppplusofonia.blogspot.pt/2012/09/o-absurdo-de-so-defender-o-credor.html
Portugal vai melhor visto de fora http://ppplusofonia.blogspot.pt/2012/09/portugal-vai-melhor-visto-de-fora.html
Charlemagne,
ResponderEliminarWhy, exactly, should forgiving some of the excessive Eurozone debt be seen as "almost impossible"?
Debt reduction and restructuring is one of the basic instruments of any debt workout, and one which Germany, the current lead creditor, has taken advantage of on various occasions in the past. The creditors’ position makes sense, for them, but it is a disservice to all to simplistically repeat this creditors’ taboo.
The Eurozone's problem is one of excessive cross-border CREDIT, and the plans to create a new Eurozone financial supervisor can be seen an implicit recognition of the dreadful consequences of the abysmal failure of the heretofore (im)prudent national central banks.