Saturday, January 8, 2011

Pressure Grows on Spain as Germany, France Press Portugal to Accept Aid

Reuters reports that,
Germany and France want Portugal to accept an international bailout as soon as possible in order to prevent its debt crisis spreading to other countries, German magazine Der Spiegel reported on Saturday.
Without citing its sources, the magazine said government experts from both European heavyweights were concerned Lisbon will soon not be able to finance its debt at reasonable rates, after its borrowing costs rose at the end of last year.
Berlin and Paris also want euro zone countries to publicly commit to do whatever it takes to protect the bloc's single currency, including topping up a 750 billion euro ($968 billion) rescue fund if necessary.
Portugal is viewed by many economists as the peripheral euro zone country that is most likely to follow Ireland and Greece to seek an international bailout as it grapples to cut its debts and borrowing costs. It holds its first bond auction of the year next week.
With Germany and France pressing Portugal to accept aid, the pressure grows on Spain to take steps to stop the sovereign crisis.

As has been discussed previously on this blog (see here and here), the only way to stop the sovereign crisis is to provide the asset-level detail at the individual bank level so that credit market analysts can determine that a country's banking system is solvent.

The mere announcement that the data is going to be made available immediately reduces the funding pressure on a country.  The reason for this is that the credit markets will believe that a government would not make this data available if the data would show that the government and the country's banks were insolvent.

Please reread the previous paragraph again as it is the key to stopping the sovereign debt crisis driven by assumptions rather than facts about the actual solvency of the banking system and the government.

No comments: