Portuguese president blocks left wing coalition from forming government

A coalition of left wing parties who have an absolute majority of 50.7% in the Portuguese parliament have been barred from forming a government by Portugal's right wing social democrat president.

In denying the Left Bloc coalition the right to form a government, President Anibal Silva said:

In 40 years of democracy, no government in Portugal has ever depended on the support of anti-European forces, that is to say forces that campaigned to abrogate the Lisbon Treaty, the Fiscal Compact, the Growth and Stability Pact, as well as to dismantle monetary union and take Portugal out of the euro, in addition to wanting the dissolution of NATO. This is the worst moment for a radical change to the foundations of our democracy. After we carried out an onerous programme of financial assistance, entailing heavy sacrifices, it is my duty, within my constitutional powers, to do everything possible to prevent false signals being sent to financial institutions, investors and markets.

It is common on the continent, where socialist parties are still interested in workers, that the left wing is anti-EU and the right wing pro-EU. Left wing parties understand the damage the EU does to productivity and the impact uncontrolled immigration has on wages and unemployment whilst right wing parties understand that the interests of large corporations and the rich drive EU policy. This is mirrored in the UK where the nominally socialist Labour Party abandoned their long held opposition to the EU to beat the drum for Brussels whilst the forces of euroscepticism are largely represented by UKIP and to a lesser extent, the Conservatives which are both to the right of centre.

It is concerning to see the a eurosceptic movement gain the support of an absolute majority of voters and be denied the right to form a government by a europhile president entirely based on his opposition to the proposed legislative programme that the electorate voted for in the election. It makes David Cameron's decision to refuse to create new UKIP peers to reflect the 3.9m votes the party got in the election to keep eurosceptics out of the House of Lords look amateurish but does raise the question: is there a pan-EU agreement to keep eurosceptics out of power at all costs?

Greeks, Portuguese and Spanish say no more austerity

The Greek President has warned the EU/ECB/IMF plutocrats sent in to oversee the implementation of punishing EU austerity that the Greek nation can't take any more.

Unemployment is still rising and 1 in 4 Greeks are now out of work but the EU sill wants more cutbacks and sackings.

Karolos Papoulis said:

Up until now, we've been receiving a merciless lashing.  I think we have paid enough for our mistakes, and Europe must realize that it needs to help Greece.

Meanwhile, over 100,000 people have protested in the Portuguese capital (and ironically the city that gives its name to the hated treaty that gives the EU almost limitless power), Lisbon, today against more tax rises and EU austerity.  Tens of thousands of Spaniards also descended on Madrid today in protest at tax increases and spending cuts.

So what is the EU's answer to the widespread dissent and opposition to the damaging austerity measures it has imposed on most of the continent?  Emperor Barroso called for ...

a democratic federation of nation states that can tackle our common problems, through the sharing of sovereignty

Nigel Farage responded to this by telling Barroso it was an "emerging, creeping euro-dictatorship" but that ...

The only good news from today is that you’ve helped to bring that referendum just a little bit closer

The europhiles just don't get it do they?  People are demonstrating on the streets of European capitals at EU taxes and austerity so the europhiles call for deeper cuts, more taxes and the abolition of the nation state.  It's unbelievable.

EU Investment Bank hedges on €uro failure

The EU Investment Bank (EIB) has inserted clauses in a loan agreement with Greek power company, Public Power Corporation, to cover the eventuality of Greece leaving the €uro.

The EIB says that it will insert similar clauses in all its agreements with Greek, Portuguese and Irish companies and eventually with companies from all EU member states. The loan agreements will also be governed under English law (not "British" law as Ekathimerini incorrectly reported at first - there's no such thing, we corrected them) which gives them better protection.

The €urozone and EU are unravelling - the people know it, the media knows it, the banks know it, only the politicians are in denial.

Spanish government rebels against EU austerity

The Spanish government has defied the EU over its budget deficit target, setting its own budget deficit target 1.4% above the EU-imposed maximum.

The Spanish Prime Minister, Mariano Rajoy, described the act of defiance as a "sovereign decision" and broke with recent tradition by not informing the French and Germans beforehand.

Unlike Greece, Portugal and Ireland, a Spanish bailout would bankrupt Germany and the collapse of the fourth largest €urozone economy would devastate the single currency.  All of which means they can pretty much do what they want without the kind of threats given to Greece to ensure subservience.

News of Spain's defiance comes at the same time as the Irish government confirmed that it will be holding a referendum on the EU Fiscal Treaty which will be a huge disappointment to the Merkozy who thought they'd finally got their fiscal union in the bag.

The bond markets are rarely wrong - is Italy next?

Working on the principle that rich investors become rich by knowing where to invest their money, taking a look at the performance of bonds issued by eurozone countries gives a valuable insight into their economies.

Government bonds are like loans - investors effectively loan governments money by buying bonds which can be turned back into cash with a guaranteed amount of interest (the "yield") after a certain amount of time.  There is, of course, the ever-present risk that said government might find itself in dire financial straits and will default on the repayment of bonds when they mature.

Generally speaking, the risk of a government defaulting on bonds is tiny because if they need money they raise taxes or print more money (quantative easing).  But there is only so much money you can print before your currency becomes worthless and it costs a month's wages to buy a toilet roll like has happened in Zimbabwe and there is only so much people will pay in taxes before they start wondering what their leader's head would look like on a spike on the walls of that lovely big palace they live in.

Sometimes countries have no choice but to default on bond repayments because there simply isn't enough money to pay them - a situation Greece finds itself in now.  And it's because of these occasional defaults that investors expect a higher or lower yield on the bonds they are buying to reflect the higher or lower risk of not getting their money back.  This is no different to what happens in high street banks and just as there are credit reference agencies deciding on the credit worthiness of you and I, so there are credit reference agencies that decide the credit worthiness of countries and their bleak outlook on the economies of eurozone countries has lead to an EU proposal to censor them.

Using the information that the likes of Moody's and Standard & Poor produce and their own gut instincts, institutional investors offer to buy a certain amount of bonds at government bond auctions with a specific yield (interest rate).  The higher the yield, the higher the risk these people think there is of the country not being able to pay their bills and defaulting or of having to print so much money that they will devalue their currency so much that the bonds are worth less than they paid for them.  In the eurozone, countries can't just print their own money or devalue their currency because they're locked into the Franco-German controlled monetary union so a higher yield on a eurozone country's bonds is mostly based on their perceived ability to pay.

Ok, lesson over.  How are things looking on the European bond market?  Let's kick Greece while it's down: Angela Merkel is trying to play down hopes of a miraculous cure for Greece's financial problems and investors clearly agree - investors are asking for an average of 28% yields on 10 year bonds according to Trading Economics.  That means that for every million pounds the Greek government raises selling 10 year bonds, in 10 years' time they will have to pay back the original millon pounds plus £280,000.  Greece raised about €20bn by selling bonds at the start of last year - if it tried to raise that amount of money again at current prices, they'd be faced with a bill for €5.6bn in interest alone as well as the original €20bn sale price of the bond.

But it's not just Greece.  If you take a look at the big increases in yields over the last year, Ireland, Greece, Portugal, Italy and Spain top the list.  The UK and Norway have seen small decreases in the cost of borrowing and Switzerland has seen a very small increase - the UK is of course outside of the eurozone and Norway and Switzerland are outside of the EU altogether.  In fact, other than Austria, Sweden, Poland and the Czech Republic, the cost of borrowing has gone up across the eurozone while costs have decreased outside of it.  Belgium is high on the list of countries seeing the cost of borrowing increase by almost a third over the year and apparently presenting a higher risk to investors than, amongst others, serial bankrupt Japan and Thailand which is rumoured to be on the brink of another military coup.

If the bond markets are anything to go by, Italy is going to leapfrog Spain and be the next eurozone economy to fail.  That's certainly the fear the EU has at the moment - they held a meeting a few days ago to talk about a possible default in Italy.  Unfortunately for the people living in eurozone countries, there is no way out of the downward spiral into bankruptcy while they are tied into the EU's single currency.

EU planning to censor international credit rating agencies

The EU Commission is planning a crackdown on the international credit rating agencies after they downgraded Portugal's credit rating the other day.

By dropping a country's credit rating, it makes it more expensive for that country to raise money through selling bonds.  Government bonds are basically promises to pay a certain amount of money on a certain date - it's effectively a government asking for a loan without any monthly repayments.

The lower a country's credit rating, the higher the amount of interest investors will want because there's a higher risk they won't get paid.  It's just like when you take out a credit card - they have a headline interest rate that you will get if your credit rating is good but if it's bad you'll end up paying a higher rate.  And if your credit rating is awful then you have to go to the kind of high risk lender that advertises on low budget satellite TV channels.

A country's credit rating doesn't matter so much unless it's trying to raise money from selling bonds, like eurozone countries are right now.  The downgrading of Portugal's credit rating a few days before it was due to issue billions of pounds worth of new bonds will cost the Portuguese government a lot of money.  Instead of paying €1.04 for every €1 of bonds they sold two years ago, they're now going to have to pay at least €1.11.  It's only 7 cents but if Portugal issues €5bn in 10 year bonds, they will have to find €5.55bn when they mature in 2021.  They haven't got €5bn now, it's a big risk to assume that they're going to have €5.55bn in 10 years time.

Obviously the amount of money eurozone countries have to pay to borrow money, the less chance there is the euro can be saved so in desperation the EU Commission is preparing new laws to stop international credit rating agencies from giving bad news about EU countries.  As with many new laws that come from the EU, this one is based on a fundamental misunderstanding of what's happening in the real world.

It seems strange there is not a single rating agency coming from Europe. It shows there may be some bias in the markets when it comes to the evaluation of the specific issues of Europe.
- Emperor Barroso, President of the Imperial Commission

Fitch Ratings and Fitch Solutions, as well as Algorithmics, a leader in enterprise risk management solutions, are part of the Fitch Group. The Fitch Group is a majority-owned subsidiary of Fimalac, S.A., headquartered in Paris, France.
(Source)

Far from helping eurozone countries, this will increase the risk of investing in government bonds from EU countries.  If they can't get accurate information about the risk of an investment then investors will steer clear of eurozone bonds or demand even higher interest rates to protect themselves from unknown risks.

Portuguese bonds downgraded to "junk"

The international credit rating agency, Moody's, has downgraded Portugal's credit rating to BA2 which gives their government bonds "junk" status.

Portugal is now on a par with the Phillipines, Macedonia and Egypt and has a lower credit rating than Barbados, Latvia and Estonia.  Even the Isle of Man has a better credit rating than Portugal and their main exports are students and Jeremy Clarkson (and he's not even Manx).

The euro house of cards is collapsing.  Greece has been bailed out and it's about to be bailed out again.  Greece's credit rating with Standard & Poor's is CCC - only 3 lower credit ratings exist, two of which are for bankrupts and defaulters.  Portugal is only 5 rungs up the ladder from Greece, hovering precariously above Albania and Mongolia.

Despite the spin and false optimism from the europhiles, be under no illusions that this is not a disaster for the eurozone.  Major eurozone economies are failing, their bonds downgraded to junk status and the cost of the loans they have to take out to pay for existing debt spiralling out of control.  The eurozone is bankrupt, its only assets are France, Germany and the Netherlands and even they can't afford to bail out half of Europe year after year.

The best thing the Greeks and Portuguese can do is ditch the euro, devalue their currency, slash interest rates and lower taxes.  In the case of Greece, they should default on their debt repayments - they literally can't afford to make the interest payments, the EU/IMF bailout is just a payday loan.

Portugal gives up and asks for a bailout

So Portugal has finally caved in and asked the EU and IMF for a loan to tide it over until next pay day.  Hands up if you're surprised ...

It was only a month and a half ago that the Portuguese government said it wouldn't be needing a bailout from the EU and IMF despite the cost of government borrowing increasing pretty rapidly.  Unsurprisingly, they've run out of money and can't afford to make repayments on bonds that are maturing soon.

Even though this is a eurozone problem, we are going to have to contribute about £4bn toward the cost of bailing Portugal out thanks to the deal Alistair Darling did, with George Osbourne's agreement, to contribute 13.6% (the percentage of the EU budget we pay) of the cost of any bailout of the Euro.

Portuguese bond yields up 1% in a month

The Portuguese government is denying that it needs a bailout from the EU and IMF despite the yield rates on Portuguese bonds rising from an average of 6.7% a month ago to 7.6% today.

I don't care, I've stuffed my mattress with US dollars!

The higher the yield rate, the less confidence investors have in the Portuguese economy.  They demand higher yields (interest rates) on the bonds because they're taking on a bigger risk of not getting their money back than if they were buying bonds from other countries.

A month ago investors demanded only 6.7% interest on Portuguese bonds but today it reached 7.6% before the European Central Bank (ECB) intervened and bought bonds with lower yields to reduce the average rate and give the impression that the risk is lower.

Of course it's partly Portuguese money - money they pay into the ECB's Treasury - that's being used to buy Portuguese bonds but to the casual investor the low yield will be a convincing enough con to make them think it's a safe investment and for institutional investors the more money Portugal owes to the ECB, the less likely they are to let it fail.

I said a month ago that Portugal would capitulate within a couple of weeks.  It seems I underestimated their resolve but the outcome is still going to be the same: Portugal will be forced to take a bailout from the EU and the IMF and it will be soon.

Two down, three to go: Portugal is next

Back in November, the Republic of Ireland came under pressure from France and Germany to accept an illegal bailtout from the EU.  Ireland, of course, said it didn't need a bailout and that it was worried about the loss of sovereignty associated with mortgaging the country to the EU but what little faith investors had left in the Irish economy was undermined and a week later they accepted a €100bn loan from the EU (including several billion from the UK) and IMF.

The required changes to the Lisbon Treaty to make bailing out member states legal have been made (another broken promise by Cast Iron Dave) paving the way for the next bankrupt Eurozone country to be bailed out.  Greece has already had €110bn from the EU and IMF, the Republic of Ireland has had £100bn and next on the list is Portugal who will be taking €80bn.

Portugal says that it doesn't need a bailout (like Ireland said) but France and Germany are trying to pressurise the Portuguese government into taking a bailout sooner rather than later (like they did to Ireland).  The French and German stock markets fell by about 1 and a half percent each and the FTSE fell half a percent on the news and the Americans are fretting about the risk of European sovereign debt.

Portugal is going to try to sell €1.25bn of bonds on Wednesday to get its hands on some cash and the interest rates are expected to be high.  Bonds are basically a type of loan taken out by governments from private markets with a guaranteed amount to be paid back on a specified date (assuming the country issuing the bonds doesn't default like Greece did).  The amount of interest investors demand on the bonds is an indication of the risk - if they think there's a chance the bonds will be defaulted on then they will demand a higher percentage rate, just like a high street bank does based on peoples' credit ratings.

On Thursday, Spain and Italy (the other two bankrupt PIIGS countries) will issue their own bonds to try and raise cash and how well they do will depend on Portugal's bond issue on Wednesday.  The ECB will probably buy more Portuguese bonds (it's already been buying up Greek, Portuguese and Spanish bonds to try and encourage investors) but as the ECB is the central bank of the failing Eurozone, it's a mystery how they expect investors to be reassured by their purchase of potential toxic bonds from the bankrupt PIIGS countries using their own money!

The order of the fall of the PIIGS has already predicted - "Portugal, Spain and Italy will be next" - Portugal will be bailed out in the next couple of weeks and then Spain will follow shortly thereafter.  Or will it?  Can EU member states (or the IMF for that matter) afford the €250-300bn it will cost to bail out Spain?  Will Spain be the straw that breaks the kamel's rücken and leads to Germany pulling the plug on the Euro?

The EU's political elite will defend the Euro and the EU project to the bitter end but the money will run out soon and Germany has been lucky so far to have pretty much escaped the consequences of the collapse of two Eurozone economies.  Next time they might not be so lucky and when the impending collapse of the Euro starts to hit Germans in the pocket they will be out of it.

The EU Knew the Scale of Greece, Ireland, Spain & Portugal's Economic Problems All Along

The European Union never ceases to amaze me. Not in a good way, but in a way that FIFA's attitude towards England never ceases to amaze me. On a quick side note, FIFA are nothing but a bunch of anglophobic fat cat self-proscribed Kings with little to no warranted involvement in football. But that's a different matter, I just needed to get that off my chest.

Flicking through a text book on the European Union a couple of tables catch my eye. One of which is the table for "The Cohesion Fund". It catches my eye because the only four countries which got the fund were the four countries that need or have had major bailouts. Bizarrely, they're even in the order of financial strife.

The Cohesion Fund was set up as a result of the Maastricht summit to provide funds for 'energy and telecommunications' for the poorest member states. Pre-2004 therefore, the European Union knew very well that taking on Greece, Ireland, Portugal and Spain would be a disastrously risky move. The only way to tackle economic problems, according to the EU is to simply throw money. In total nearly 3 billion Euros were given to just four countries.

These four countries, in 2003, accounted for over a quarter of the loans granted by the EU. This in real money, for the period of 1997-2003 means that these four countries were granted a whopping 45 billion Euros of loans. That's equivalent to 20 years of savings from coalition government cuts!

It doesn't end there. In 2003 there were only four countries that were net beneficiaries of their EU budget contributions. Those countries, yes you guessed it, were Greece, Ireland, Spain and Portugal. The UK got 3% LESS back from their EU budget contribution. The table below shows the percentage profit made by the four countries:

Greece, Spain and Portugal shouldn't be entirely blamed for the mess that they are in. The three countries, were very reluctant in joining the Euro so early, citing that they felt they were not economically ready. The EU Commission, didn't care. Nothing was going to stop their European dream. Ireland, on the other hand, were very eager beavers.

What strikes me the most about all of this data is that it is an outright lie that the European Union had no idea that the four countries would pose economical problems both for themselves as nation states and for the European Union. They knew even when bullying a reluctant Greece, Portugal and Spain in to the Euro that they were playing with fire.

It is that what frightens me the most about the European Union. That they put their own European Dream ahead of reality, the attitude of regardless we will go on.

5m new EU citizens

The Bulgarian Minister for the Diaspora, Bozhidar Dimitrov, has announced that up to half a million Bessarabians are expected to take advantage of a change in the law to give them Bulgarian citizenship.

Over 17,000 ethnic Bulgarians living in Moldova and Ukraine have already been given Bulgarian passports, allowing them to live and work anywhere in the European Empire.  An additional 300,000 ethnic Hungarians living in Serbia will be allowed to apply for Hungarian passports in 2011 and Romania has been handing out passports to Moldovans.

Spain, Italy and Portugal have all been handing out passports to the children and grandchildren of émigré, most of which live in Latin America and the Caribbean.

This wouldn't be a problem, of course, if the recipients of these new passports stayed in the country that had so generously granted them but of course they don't.  They make their way to the richer western European countries where they have the right, as EU citizens, to live and work, to claim benefits and to receive any services the "natives" are entitled to.  It doesn't matter that we don't have enough houses or jobs to meet the demands of people already living here, every one of the estimated 5m new EU citizens will have the right from the day they get their passport has been given the right by a foreign government we have no control over to live and work here.

The way things are going, they'll be giving away EU passports for 4 Weetabix tokens and a £5 postal order.