Find “Greece”, Replace With “Portugal”

The leaders in Europe want you to believe that Greece “is a special case” and that no other country will be giving bondholders “haircuts”. The market is not buying it. The graph below, from Zero Hedge, shows five-year Portuguese bonds just hit a new crisis low. Think about that – after all the bailouts, backstops, money printing, unlimited three-year loans, and market intervention from central banks, Portuguese bonds are currently showing the highest probability of default during any other point in the crisis.

Portuguese Bonds Yield and Price

The graph above throws some cold water on the face of the “everything is under control in Europe” theory currently touted by Wall Street. The odds are very good the news media will be able to republish many articles recently written about Greece by simply finding “Greece” and replacing it with “Portugal” in their word processor of choice.

The situation was summed up well in the Telegraph (01/26/2012):

A report for the Kiel Institute for the World Economy said Portugal would have to run a primary budget surplus of over 11pc of GDP a year to prevent debt dynamics spiralling out of control, even in a benign scenario of 2pc annual growth. “Portugal’s debt is unsustainable. That is the only possible conclusion,” said David Bencek, the co-author, warning that no country can achieve a primary budget surplus above 5pc for long. “We won’t know what the trigger will be but once there is a decision on Greece people are going to start looking closely and realise that Portugal is the same position as Greece was a year ago.”


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