English: The government debt of Portugal, Italy, Ireland, Greece, United Kingdom, Spain (PIIGGS) against the European Union and Eurozone 2002-2009. Data from Eurostat. (Photo credit: Wikipedia)
European Union (Photo credit: Wikipedia)
- National-Debt-GDP (Photo credit: Wikipedia)
On Thursday this week we were told that the 4th Euro Zone country may need a possible sovereign bailout of 100 billion Euros. The fact this amount as l reported previously has risen from 23 to 43 to 46 and now 100 billion by miscalculation of debt! It now appears that it is imminent in any case. This extract picked up at the time goes someway to explain the need but not the reason WHY?
Spain’s troubles are mounting, with indebted regions asking the central government for help and borrowing costs at record highs. There are fears that the euro zone’s fourth-largest economy may need a full sovereign bailout even though the country has just received a €100 billion ($121 billion) rescue package to shore up its ailing banks.
The European Union is responding with plans for the temporary bailout fund, the European Financial Stability Facility (EFSF), to buy Spanish bonds on the secondary market in order to push down interest rates on those bonds, German newspaperSüddeutsche Zeitung is reporting on Thursday.
“If Madrid submits a request we are prepared to act,” an unnamed EU diplomat told the paper. Spanish Finance Minister Luis de Guindos has urged EU colleagues to authorize the EFSF to buy Spanish bonds. He met German Finance Minister Wolfgang Schäuble on Tuesday and French Finance Minister Pierre Moscovici on Wednesday.
The bank bailout for Spain is a prerequisite for the EFSF to buy bonds because EFSF rules state that this kind of financial aid is only permitted if the affected country has an unresolved banking problem, Süddeutsche said. “We hope we can calm the markets now,” it quoted the EU diplomat said as saying.
So how is it these countries have got into this position, as night follows day Greece began the need for X billions but with no GDP to repay what they owe! So then along comes the fourth largest economy and this time they want a lot more again what can they repay it with! At present they have massive debts and much of this debt is never ever going to be repaid!
It is invested in a dwindling asset such as property, which 20 years ago had the same problem, it crashed and many people lost their homes! Another 10 years further on and we are back there this time not 100’s of thousands are owed but billions and in some cases overall debt in the world amounts to http://www.usdebtclock.org/world-debt-clock.html well take a look at how it rises second by second and it will amaze you!
So we got here by wanting more to buy more and then our GDP would rise more but of course so would our debt’s When you lend without any form of financial management you are being what can only be called as cavalier or reckless with your lending policies! By this method we lend billions to a country to bail it out for covering their debts for 3 months and in some cases 1 month. Is this not reckless lending and not considering in 1 month what this country will do, let alone having increased their debt! The best solution our EU leaders can come up with is this extract!
‘The Best Solution’
Berlin has made no official statement on Spain’s request but sources close to the German government said it wasn’t opposed to bond purchases in principle. Such a move would have to be signed off by a German parliamentary panel consisting of nine lawmakers made up of members of all the five parties represented in parliament. Chancellor Angela Merkel‘s center-right coalition has five parliamentarians on the panel.
The French government supports bond purchases. French President Francois Hollande on Wednesday called for rapid and decisive help.
Words like rapid and decisive help this will be the same rapid and decisive help for Greece that has dragged out month after month after month, anyone remember Greece’s first request it was May 11th 2010 as reported by the WSJ and it stated in this post –
Wall Street Journal – May 11th 2010 –
Greece to Request First Aid Tranche
ATHENS—Greece on Tuesday will formally submit its request for the first tranche of aid from the European Union and on Wednesday will receive the first installment of financial support from the International Monetary Fund.
“We will be submitting the formal request for the transfer of €14.5 billion [$18.54 billion] from the EU.
The figure was 14.5 billion Euros was what they asked for and the upshot was this from an extract in Wikipedia
The downgrading of Greek government debt to junk bond status in April 2010 created alarm in financial markets. On 2 May 2010, the eurozone countries and the IMF agreed on a €110 billion bailout loan for Greece, conditional on the implementation of austerity measures. In October 2011, Eurozone leaders agreed to offer a second €130 billion bailout loan for Greece, conditional not only the implementation of another austerity package, but also that all private creditors should agree to a restructure of the Greek debt, reducing the debt burden from a forecasted 198% of GDP in 2012 to a more sustainable level at 120.5% of GDP by 2020.
The amount was not 14.5 billion but 100 billion in May 2010 and a further amount of 130 billion in October 2011 and the provisions agreed would be reduce debt burden from 198% of GDP in 2012 to a more sustainable level of 120.5% of GDP by 2020.
My simple overriding question is HOW? Can any country reduce their debt burden when they borrow such vast amounts! Would it not have been better to stage manage a small tranche of funds are requested and monitored their economy closely for where the problems were before this commitment to lending such a vast amount!
I can see Spain going the way of Greece and eventually the Euro going the way of the dodo!
Nobody can sustain 120.5% debt burden and repayment is not achievable in any case, given the present global financial situation!