With Greece generally regarded as the eurozone economy most likely to go belly up and plunge Europe into crisis, what odds Portugal and then Italy making a late run in the disruption stakes?
The past two weeks has been full of speculation about Greece’s unstable financial position and whether it would default.
That speculation though, while colourful, forgot one important ingredient: who will pull the trigger and send Greece into default and bankruptcy?
No one has stepped forward, not even the usually gung ho Germans or the newly tough Finns.
But suddenly everyone is talking nice about Greece, even Germany. Perhaps someone lent over the edge of the cliff and spotted some very nasty rocks far below and decided, ‘let’s be nice’.
Even the euro has reversed course and risen strongly in the last two weeks, despite the noise about Greece’s problems have gotten louder.
So even now Germany thinks Greece is doing sort of OK and should get another bailout.
But amid all this speculation, Sunday’s Portuguese elections have been allowed to go unnoticed. But suddenly overnight there was an outbreak of concern.
On top of that, Italy’s shaky Berlusconi Government faces something it didn’t want, a defacto referendum on the Prime Minister’s popularity and reputation.
After humiliating losses in local council elections last Sunday (including a loss in Milan, Berlusconi’s power base in Northern Italy), Italy could be staring at possible elections or a period of intense political uncertainty.
With Standard & Poor’s rating agency putting Italy’s outlook on a negative basis, and partly blaming political instability, the referendum on nuclear power on June 12 and 13 suddenly assumes much greater importance.
And why is this important?
Well you saw the rise in market uncertainty in May and then Wednesday’s rapid and violent sell down in the US.
So more volatility in Portugal, Italy and then Greece where no deal has been confirmed for a new bailout (the voters won’t agree to the cuts proposed), will merely add to the rising tide of fear and desperation.
So on Sunday Portugal goes to the polls which are supposed to break of a three month political logjam for the €78 billion ($US112 billion) bailout.
The bailout package agreed to by caretaker Prime Minister Jose Socrates, who resigned in March after parliament rejected new austerity measures, will bring on tougher times for the economy, and rising dissatisfaction.
The worst result will be a vote where neither the former government or opposition get enough votes to dominate parliament and drive through the austerity measures needed to gain the bailout funds and keep them flowing (which is now the problem in Greece).
We should know next Tuesday morning, our time, just what the make up of the new government is.
If there’s no change, the markets will fret; Portugal’s bond yields will continue rising to crushingly high levels and the country will be locked out of refinancing its financial needs (It paid 43.97% for short term loans this week).
Under the bailout terms devised by the International Monetary Fund, the European Union and the European Central bank, Portugal must cut its budget deficit to 5.9% of GDP this year, from 9.1% last year.
The nation’s Finance Ministry projects a 2% fall in GDP this year and next. Unemployment jumped to 12.4% in the first quarter, from 11% in the fourth quarter, a figure expected to climb as austerity kicks in.
In Spain unemployment is 21% (and over 40% for young people).
No wonder the Socialist Government is going to lose the next election and has already done badly in regional polls.
According to media reports overnight, the Socialist Party and the Opposition conservative PSD are each expected to get a 30%-plus share of the vote on Sunday, not enough to form a parliamentary majority, which means that a coalition will be required. But the PSD could win and form a coalition with a smaller party called the PP, and get enough for a majority.
Italy will hold a referendum on June 12 and 13, to decide whether or not the country should accept nuclear power.
Italy’s top court ruled that the country’s citizens can vote in the referendum as scheduled, even though Berlusconi’s Government shelved plans for the four nuclear power stations.
Berlusconi had pledged to revive nuclear power in order to reduce dependence on foreign oil and natural gas.
Opposition forces had called for a national referendum on the issue.
However, in the wake of the accident at Japan’s Fukushima Daiichi nuclear power plant, Berlusconi froze his initial plan, apparently to avoid holding the referendum in view of growing anti-nuclear public sentiment.
The court ruling went against the Prime Minister’s wishes and effectively makes it a vote on his popularity, which is the last thing anyone wants.
And Greece? Well Moody’s downgraded Greece’s rating again on Wednesday, putting 50-50 odds on a default.
The rating agency cut Greece’s rating to Caa1, its third-lowest rating, and kept its outlook negative, meaning another downgrade may come soon.
Moody’s blamed rising chances that the country won’t stabilize its debt burden and the country’s "highly uncertain growth prospects".
Two-year Greek bonds have traded at yields as high as 25% in recent days.
The 110 billion euro bailout package adopted last year requires Greece to come to market for more funds next year.
That is now off.
So Greece needs new money because it w
