Global Finance Heh
You've heard of the BRICs. Now meet the PIIGS...
"The Portuguese government failed to find sufficient investor interest in its bonds on Feb. 3, with only 300 million euros ($417 million) of its 12-month bonds sold out of an expected 500 million euro bond offering. The interest that Portugal will have to pay on the bonds was 1.38 percent, compared to 0.93 percent at a Jan. 20 auction. The increase in the cost of financing debt indicates investor skepticism toward Portuguese debt. This follows Portugal’s Jan. 25 budget announcement in which Lisbon failed to convince credit rating agencies — specifically Fitch and Moody’s — that its austerity measures were sufficient to cut its budget deficit. Furthermore, Portugal’s 2009 budget deficit was 9.3 percent of gross domestic product — higher than the forecast 8.5 percent — and Lisbon will only be able to reduce the deficit by 1 percent in 2010. The news of a poor bond sale from Portugal follow some positive news from Greece, where a semblance of investor confidence returned on Feb. 3 — interest on government bonds fell to 6.73, after hitting a high of 7.16 on Jan. 28 — due to positive comments from the EU Commission regarding the Greek budget austerity plan. The dire news from Portugal, however, indicates that investors still lack confidence in the PIIGS (Portugal, Ireland, Italy, Greece and Spain) as a group. A sufficiently negative perception of PIIGS economies could force financing costs to skyrocket, making it difficult for Eurozone’s peripheral states to finance their ballooning budget deficits. This could force the EU to step in; rumors have swirled recently around European capitals that eurozone members are discussing the possibility of floating a eurozone-wide bonds which would then provide funding for countries in trouble. It is unclear at the moment, however, how willing Berlin is to offer such a lifeline to the PIIGS when it wants to put the onus on budgetary austerity measures instead."
"The Portuguese government failed to find sufficient investor interest in its bonds on Feb. 3, with only 300 million euros ($417 million) of its 12-month bonds sold out of an expected 500 million euro bond offering. The interest that Portugal will have to pay on the bonds was 1.38 percent, compared to 0.93 percent at a Jan. 20 auction. The increase in the cost of financing debt indicates investor skepticism toward Portuguese debt. This follows Portugal’s Jan. 25 budget announcement in which Lisbon failed to convince credit rating agencies — specifically Fitch and Moody’s — that its austerity measures were sufficient to cut its budget deficit. Furthermore, Portugal’s 2009 budget deficit was 9.3 percent of gross domestic product — higher than the forecast 8.5 percent — and Lisbon will only be able to reduce the deficit by 1 percent in 2010. The news of a poor bond sale from Portugal follow some positive news from Greece, where a semblance of investor confidence returned on Feb. 3 — interest on government bonds fell to 6.73, after hitting a high of 7.16 on Jan. 28 — due to positive comments from the EU Commission regarding the Greek budget austerity plan. The dire news from Portugal, however, indicates that investors still lack confidence in the PIIGS (Portugal, Ireland, Italy, Greece and Spain) as a group. A sufficiently negative perception of PIIGS economies could force financing costs to skyrocket, making it difficult for Eurozone’s peripheral states to finance their ballooning budget deficits. This could force the EU to step in; rumors have swirled recently around European capitals that eurozone members are discussing the possibility of floating a eurozone-wide bonds which would then provide funding for countries in trouble. It is unclear at the moment, however, how willing Berlin is to offer such a lifeline to the PIIGS when it wants to put the onus on budgetary austerity measures instead."
posted by Donny Baseball at 3:59 PM
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