07-14-2016, 10:43 PM
A new German plan to impose "haircuts" on holders of eurozone sovereign debt risks igniting an unstoppable European bond crisis and could force Italy and Spain to restore their own currencies, a top adviser to the German government has warned. “It is the fastest way to break up the eurozone,” said Professor Peter Bofinger, one of the five "Wise Men" on the German Council of Economic Advisers. "A speculative attack could come very fast. If I were a politician in Italy and I was confronted by this sort of insolvency risk I would want to go back to my own currency as fast as possible, because that is the only way to avoid going bankrupt,” he told The Telegraph.
German 'bail-in' plan for government bonds risks blowing up the euro - Telegraph
The risk spread on Portugal’s 10-year debt surged to 410 basis points over German Bunds last week, pushing borrowing costs back to unsustainable levels in real terms. Portugal’s public debt is 132pc of GDP. Total debt is 341pc, the highest in Europe. The country is in a debt-deflation trap and requires years of high growth to escape. “Portugal is close to losing market access,” said Mark Dowding, from bond manager Blue Bay. “We saw very ugly conditions last week, and large US managers invested in Portugal have been looking to exit those positions. With fund redemptions going on, it is a perfect storm.”
German 'bail-in' plan for government bonds risks blowing up the euro - Telegraph
Portugal's Prime Minister has had less than three months on the job to try to turn around the lagging economy. Yet, he has already announced plans to undo some of the measures introduced by his predecessors as part of Portugal's bailout by the IMF and the European Union (EU). For example, he hopes to increase state salaries, raise family incomes, reduce austerity measures, and make other changes designed to improve the economic situation of the common Portuguese citizen. While these measures may be popular with voters, the IMF has its concern. Recently, it has said that Costa's proposed budget "implies a loosening of the fiscal stance." Per the IMF's estimates, if the budget is adopted in its current state, it will create a deficit of 3.2% of gross domestic product (GDP) by the end of 2016. That nearly doubles the deficit of 1.8% experienced under the prior administration's stability programs.
IMF Says Portugal's Growth Constrained by Heavy Debts | Economy Watch