Welcome to the game for all the investing family for 2011 and beyond.
It’s called Bailout!, or Debt Dominoes, and the rules are being drawn up at a two day meeting of European Union leaders in Brussels which started overnight.
Thousands of hours of frustration and fear are guaranteed for next year and beyond, especially if Spain get’s into trouble, as Moody’s this week suggested might happen.
Don’t forget either that Portugal; Italy and Belgium are now active players, while Greece and Ireland have already won their regional finals of Bailout!
Watch the debt position of more and more members of the eurozone career out of control as nervous markets and credit rating agencies turn feral, especially if Germany gets its way and insists on getting its way on how to handle future sovereign debt problems by insisting that private bond holders share the risk from 2013 onwards.
In fact, be like Germany and change the rules of the game mid-game. You can, if you are the strongest member of the zone and the one with the deepest pockets.
The game will be the hit of 2011 because you will never know who will be next invited onto the board to play.
So join Europe’s most powerful politicians in a two day depth of winter meeting that will finalise the rules of Bailout/Debt Dominoes.
It’s a full EU meeting, not just the eurozone, where most of the problems lie.
The two day meeting will be asked to approve a change in the EU’s treaty that should lead to the creation of a permanent mechanism for handling euro zone financial and debt crises from mid-2013. (That’s German’s contribution to the rules of the new game).
The will also discuss ways to prevent the euro area’s debt crisis escalating, given fears that it could soon spread from Greece and Ireland to Portugal and Spain. (And don’t forget Belgium, which was nominated this week)
But why stop at Europe?
Let’s go global.
Already starters for the game of the decade this week are; America warned on Monday, Belgium on Tuesday and Spain on Wednesday and Greece (again) on Thursday.
That’s Europe, over in Asia; Vietnam had its rating cut Wednesday night for good measure by Moody’s.
Back in Europe on Thursday and Moody’s warned that it could further downgrade its rating on Greek sovereign bonds because of doubts over the country’s capacity to reduce its debt to sustainable levels.
That’s a bit rough.
New Zealand was warned a month or two ago, Japan is being eyed suspiciously by the rating judges and I’d be having a saver on Brazil because its the emerging market economy where inflation and a big crunch is mostly likely to happen in 2011, judging by the surge in imports and rising tide of inflation.
Of course China would be a contender the longer the Government holds off on more rate rises, but when you hold close to $US2.5 trillion of the world’s savings, even the crunchiest of slowdowns can be accommodated without trouble the ratings agencies, but the likes of Australia, Japan, Brazil and the rest of Asia might be rattled.
But Asia is a side issue; the big board is in Europe.
Don’t you appreciate the irony of the two EU summit being held in Brussels, the capital of Belgium, and the newest member of the Bailout! contenders club?
In fact Belgium’s elevation to the main board (where previous favourites, Greece and Ireland are already in jail, having collected 195 billion euros between them) means that we now have the BPIIGs, instead of the old contenders, the PIIGS.
Belgium has moved ahead of previous warm favourite, Italy after PM Silvio Berlusconi managed to hang onto power by the seat of his pants (and keeping them on for a day or two) on Tuesday night.
Of course, if you have such an interesting game, you have to have judges and rule keepers to promote and demote players.
So cue the credit ratings agencies, fresh from their multi-product triumphs in rating US subprime mortgages and all forms of credit derivatives, commercial property debt, the debt of a host of failed banks in the US and around the world.
Moody’s has been the most significant member of the ratings agency trio (others are Fitch and Standard & Poor’s) with two warnings (plus Vietnam, a big week so far); the US and Spain.
Standard & Poors took a poke at little old Belgium where the Flemmings and Walloons haven’t been able to agree on much, especially forming a new national government mid year.
Standard & Poor’s revised its outlook on Belgium to negative from stable, citing the nation’s political turmoil.
"We believe that Belgium’s prolonged domestic political uncertainty poses risks to its government’s credit standing, especially given the difficult market conditions many euro-zone governments are facing," said S&P credit analyst Marko Mrsnik.
S&P pointed to the prolonged delay in forming a federal government after the June general election as well as the prolonged inability to form a policy consensus across Belgium’s language barrier.
Belgium has a debt burden of nearly 100% of GDP and no government, a recipe for financial chaos if the country splits down ethnic lines and no one is left to be responsible for the debt.
Of the trio, Spain’s warning and that issued to Belgium will produce downgrades (advances towards Bailout! on the board) before anything is done to America’s AAA rating.
In fact there have been two warnings for Spain this week (is that a ‘ye
