Portugal...Spain...What does this mean for us?

wylo

Just wondering, when we take the bailout, (sunday afaik), and then Portugal needs a bailout what does that mean for us, Portugal may need one within weeks!!
What if Spain quickly follows suit?

http://www.businessweek.com/ap/financialnews/D9JN5KA80.htm

Portugal bond yields stay near record highs


LISBON, Portugal

Yields on Portugal's 10-year bonds are at 7 percent, near record levels first reached earlier this month when the country's financial crisis began to deepen.

The yield on equivalent bonds in Spain -- seen as vulnerable if neighboring Portugal needs a bailout -- ticked higher to 5.2 percent Thursday after exceeding 5 percent for the first time the previous day.

Germany's 10-year bonds, a benchmark of global lending safety, stood at 2.7 percent.

French banks were the most most exposed to Portugal's public debt at the end of the first quarter, holding $20.4 billion (euro15.3 billion), according to a September report by the Basel, Switzerland-based Bank for International Settlements.

Spanish banks held $10.6 billion (euro8 billion) and Germany's $9.9 billion (euro7.4 billion), from a total of $62.9 billion.

Overall what does this mean for the Euro and for Ireland. Can Europe bail out Spain?
Sorry i know theyre kinda general questions but im still trying to work out is taking on a massive loan completely pointless.
The only thing Im happy about is the fact that its a contingency fund.

southsiderosie

wylo wrote: »

Just wondering, when we take the bailout, (sunday afaik), and then Portugal needs a bailout what does that mean for us, Portugal may need one within weeks!!
What if Spain quickly follows suit?

http://www.businessweek.com/ap/financialnews/D9JN5KA80.htm


Overall what does this mean for the Euro and for Ireland. Can Europe bail out Spain?
Sorry i know theyre kinda general questions but im still trying to work out is taking on a massive loan completely pointless.
The only thing Im happy about is the fact that its a contingency fund.

Europe cannot bail out Spain. Their economy is far too big.

Part of the problem is that nobody believes the Spanish government when they say that the situation has stabilized. Zapatero had been in denial about the crisis basically up until last spring; he insisted Spain would be fine when it was obvious that this was not the case.

In addition, people are very worried about the state of the smaller lending societies ('cajas'). Mortgage defaults have been low so far because the banking laws are so onerous, but there are fears that will change over the next year. Plus, even large healthy banks like Santander are hugely exposed to Portugal, which is Spain's largest trading partner.

Solair

The Spanish banking system's very different from most of Europe. The big banks which we are all aware of e.g. BBVA and Santander are very safe, however they are not where the risk is.

Spain has 45 smaller banks which are called Cajas (Caxias in Catalan). These were originally savings and loans banks which have a kind of social motive, sort of like building societies, or perhaps more accurately, like local versions of the old TSB Bank.
http://en.wikipedia.org/wiki/Savings_bank_(Spain) (Information about the Cajas/Caxias)

The Cajas evolved, much like Irish Nationwide and Irish Permanent, into full banks and became quite entrepreneurial in their lending practices too. They have roughly 50% of the Spanish banking market and a huge % of the mortgages and property loans to developers.

I think there's an element of a lack of understanding of the Spanish banking situation because the international commentators are just looking at the bigger banks and ignoring the fact that there is this vast system of small banks just below the radar.

To make matters even worse, the Spanish unemployment rate is 19.75% or 4,574,700 people.

There is also significant evidence of property bubbling going on even now! Apartments and houses in many cities are vastly over priced.

On the plus side, a bit like Ireland, aspects of the Spanish economy are quite nimble and innovative compared to much of Europe but the scale of what's going on on the other side is also a bit like Ireland and I fear it could suck it dry.

I don't really think the Irish 'contagion' is necessarily the issue. There are fundamental problems in Spain and Portugal which are problems regardless of what happens in Ireland.

Bob_Latchford

Think its all part of the same issue. Might even help Ireland as it shows there is a fundamental issue with debt in the eurozone that needs to be addressed.

First they came for the Greeks and you did nothing etc etc.

rumour

I can't help thinking that he markets are going to circle and circle like vultures until they get at France and Germany via the ECB.

I have no other rational for this other than following the money.It always seems to end up in France or Germany.

Solair

I think you may be right!

Also, when you look at the French economy in particular, it's not exactly fantastic. I think there's a lot of arrogance going on.

High long-term unemployment, major problems with labour flexibility/movement of labour, huge social problems (to the level that there were riots in Paris etc), increasingly crumbling infrastructure (it ain't what it used to be!), massive public service (makes the Irish one look tiny) and really no entrepreneurial outlook.