E.U. Bailout Window Open
Research for Online Investors

by John Dalt

5/4/11

The market looks weak this morning.  Portugal agreed to a $116 billion dollar bailout overnight from the International Monetary Fund (IMF) and European Central Bank (ECB).  They joined Ireland and Greece in receiving financial aid.  The rescue package is for a term of three years.

Sky News covers the European bailout mechanism and the continuing credit problems of some countries.  Greece and Ireland may need to ‘write down’ or renegotiate their debts, as their debts are larger than their nation’s respective Gross Domestic Product (GDP).

Portugal’s government fell over budget battles to cut spending in March.  We covered the political maneuvering on 3/23 in Portugal Melt Down.  Elections are scheduled for June 5, and the new government will have to pass austerity measures they opposed.  It will be a bitter pill.

Finland had their elections last month.  The True Finn party picked up enough seats to swing Finland’s vote against a new European Stability Mechanism.  The Eurozone’s current agreement expires in June.  The vote to approve any new agreement must be unanimous.

Portugal’s leaders realized that rescue was available now and may not be in the future.  The caretaker government of Prime Minister Jose Socrates was able to negotiate state worker salaries and retirement age in the present package.  The IMF predicts the austerity measures and higher taxes will contract Portugal’s GDP two percent in 2011 and 2012.  Portugal has already had one of the slowest growth rates in Europe for the last ten years.

Portugal’s budget deficit ran 9.1% last year.  According to Reuters, the agreement requires the deficit be lowered to 5.9% in 2011, the 4.5% in 2012 and 3% in 2013.  Eurozone finance ministers will be meeting later this month to set the interest rate on Portugal’s bailout loan.  Portugal has $3.5 billion dollars in bonds maturing on June 15, 2011.  The country needs the bailout funds to lower their borrowing rates in order to repay these loans.

The eurozone credit crisis is far from over, and could take down world markets if the healthy economy’s voters withdraw support for the additional debt the rescues place on their economies.

The mailbag:
I am compassionate.  But there are actions (allegedly charitable) that don't work to relieve suffering, and government management is one.  The charity you mention is worthy, but its efforts are negated by the awful government of Haiti and the awful corruption of the US sponsored/endorsed NGOs.  I wish it were otherwise.  Short of a successful anti-government-intervention NGO combined with an NGO that successfully promotes individual rights... nothing will help.  It's a terrible place we are in, that our effort to help will be meaningless or counterproductive.  Thanks for your earnest efforts.  These are just my thoughts and don't include any judgment.---paid up subscriber M.T.

John’s reply:  I cannot disagree.  Human suffering tugs at our heart, regardless of the cause.  I do not know the answer.  It is disappointing that Haitians are not able to throw off the chains of corruption and build a productive society.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

MarketToday Archive

Back to Top