Europe’s debt woes

July 10, 2014

The parent company of Portugal’s Banco Espírito Santo suspended trading this morning after shares fell 17% (its market value has declined 32% in this week alone). The bank — the country’s second-largest lender — missed interest payments on some short-term securities to “a few clients” earlier this week. Things haven’t been great for the Portuguese bank since December, when an audit revealed serious accounting irregularities in its parent company.

“Lisbon needs to sort out Banco Espírito Santo – fast,” say Breakingviews’ George Hay and Neil Unmack. “The Espírito Santo group has managed to create a national crisis out of a family drama,” they add. Specifically, Portuguese regulators need to keep a closer watch on the bank, which has traditionally been run by the Espírito Santo family, and step up to manage the fallout of what’s already done, “pushing through an orderly restructuring, and making sure it is equitable for creditors,” they write. However, Bloomberg View editors say that “Portugal can’t easily afford to support the bank, should support be needed.” This is a problem, they say, because while recent reforms in Europe were supposed to break the ties between bank finances and sovereigns, it hasn’t really happened yet, leaving the Portuguese government on the hook.

The bad news from southern Europe wasn’t contained to Portugal today. From theWSJ:

In Spain, a bank and a construction company each called off planned bond sales. In Italy, a drug company pulled its stock offering. In Greece, a government-bond sale came in smaller than expected. And stock markets across the continent fell, along with the euro.

John Jansen points out that southern European bond spreads are a lot wider against German bunds than they were a month ago. Toward the core of the eurozone, things aren’t great either. Sam Ro reports that Pantheon Macroeconomics’ Claus Vistesen said today, “we are running out of downbeat adjectives to describe the data in France,” after the news that industrial production is down 3.7% year-over-year.

“It’s ‘Groundhog Day’ for those who remember 2011′s European debt crisis,” writes Barron’s Brendan Conway. However, Simon Kennedy at Bloomberg says this definitely isn’t a return of the euro crisis. “Even Greece sold bonds today, though at yields higher than some analysts predicted amid the skittishness,” he writes, suggesting that Mario Draghi’s promise that the ECB will do “whatever it takes” to save the euro may be keeping the market relatively stable. Blonde Banker says it’s just another day in Europe. “High debt – both sovereign and personal. High unemployment. Weak economic growth. Deflation… Carry on.” — Shane Ferro

On to today’s links:

Meet Steven Mandis, a small business loan shark and former Goldman Sachs banker, who “describes his career as a search for meaning” – Zeke Faux and Max Abelson

The Fed
An overhaul of the Fed funds rate could be coming – Robin Harding

Everything you possibly wanted to know about Marc Andreessen’s Twitter habits (and more) – Dan Frommer
What is CYNK? – Myles Udland

Black Market
Sex, drugs, and the proper measurement of economic activity – Nick Bunker

Stuff We’re Not Linking To
“When you marry for money, you work for it every day” – Amanda Gordon

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