Short political legitimacy
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From Greece to Cyprus, Slovenia to Spain and Italy, and now most pressingly Portugal, where the finance and foreign ministers resigned in the space of two days, a host of problems is stirring after 10 months of relative calm imposed by the European Central Bank.
According to one political scientist, “it looks like the end-game for the government” in Portugal, as yields hit an intraday high of 8.18% today, their highest since November 2012. In comparison, Portugal sold 10-year debt in May at less than 6%. After Portugalâ€™s finance minister stepped down earlier this week, the countryâ€™s foreign minister, Paulo Portas, followed suit. Portasâ€™s conservative CDS-PP party had been pushing for changes to the terms of Portugalâ€™s â‚¬78 billion bailout.
This austerity fatigue comes as the Troika — the ECB, the European Commission, and the IMF — are due to review Portugalâ€™s progress towards those same cuts. (Reuters has a nice explainer of the latest round of cuts here; Portugal has already cut primary spending by â‚¬13 billion in the last two years.) At the moment, Barclays projects that Portugalâ€™s public debt will peak at 134% of GDP in 2015, far above previous estimates. As Alan Pyke notes, the results of austerity experiment in Portugal have been terrible:
Instead of the 1.2% annual GDP growth bailout authorities projected for 2013, the economy is expected to shrink by 2.3% this year. Unemployment was supposed to hit 13% in 2013, according to the bailout announcement, but in fact itâ€™s nearly 18%. More than four out of 10 young Portuguese are unable to find work.
Things arenâ€™t much brighter in Greece, which now has just a few days to satisfy its bailout lenders over its own cuts. Matt Yglesias argues that this recent Euro crisis flare-up is simply reflective of the â€śrickety structureâ€ť of Europeâ€™s economic agenda. â€śEverything is being held together, financially, by measures with dubious levels of political legitimacy,â€ť he writes. – Ryan McCarthy Â
On to todayâ€™s links:
â€śItâ€™s like the seventh grade but without the lollipopsâ€ť: The battle over cross-border financial regulation is getting snippy – Ben Protess
A great explainer on the Fed’s new capital rules, and how they relate to Basel – Peter Eavis