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European Debt Infection is over ! Beware it may cross the Atlantic !

First it was Greece which took 110 billion Euro  bailout package. Irish republic’s  85 billion euro bailout package was announced last month. Many experts were  thinking about the next victim, may be Portugal or Spain!  But in this moment it looks to me that the problem is over,  if not at least for short-term.
Let talk about the  sovereign debt problem. But first see the budgetary deficit of  some EU countries.


Govt. Deficits (%)





















* Figures of 2009
Actually this  deficit is not something which suddenly comes out, it was there but in those time the other surrounding environments were not like what it is now. Except some countries like Germany, Netherlands e.t.c  the other countries are facing the heat.  Let see the GDP growth rate ---

Though matter is gradually improving as we see in the GDP growth rate. But unless the economic situation of the world changes in a big way it is very hard to improve these figures. 
Markets were worried about the European Bond sales this week. let see some figures  ---
Recent Yields

Previous Yields







After gap of December  Greece sold  $2.53 billion T-Bill, now they are fortunate to sold bonds below the yield of 5%. Because if I am not wrong the rate of borrowing of  IMF and EU moneys  is more than 5%. On the other hand in Italy’s Treasury selling both domestic and international investors  showed their interest, it reflects why Italy is better than it’s neighbors. Hungary is the only country between them which sold their 3-Year T-Bill in  lesser  yield  than  it previously sold.
Now this type of thing  makes me smile too much. Few weeks ago Moody’s downgraded Hungary  by two notches reason was fiscal- sustainabity , now looking at the lower yield I think there is big difference between the working areas of these Rating Agencies and real world !
Netherlands which is in  much better position from others,  sold 3.25 billion Euro amount of  3-Year Bond at an average yield of 1.297%. Actually Netherlands is little bit immune from this sovereign debt problem.
Now these bond selling of the above countries made the way for problematic countries to issue their bonds.
Portugal’s bond selling was not an exam but definitely it  shows Portugal’s ability to raise fund as such it has raised 1.249 billion Euros by selling  4-Year & 10-Year Bonds which yields 6.719% recently it’s yield was at high of 7.3%.
Next it is Spain which raised 3 billion Euro in a 5-Year Govt. Bond selling  whose average yield was 4.542%. Spain’s finance minister told that Portuguese bond sale helped to prepare the ground of Spain’s debt sale. But they cannot forget that debt sell get supported too from Chinese minister’s speech of Chinese buying of Spanish debt.
Belgium is facing a political deadlock. It’s  10-Year Bond yields 4.07% , which is 115 basis point higher than benchmark German bond.

Spain is facing of repayment of  15.5 billion euro in April. Spain housing bubble created lot of unsold properties and lot of bad debts in banks. Spain is one of the highest in private debt loan and its private financing that needed to be improved. Moody’s may downgrade Spain in coming future.
Portugal is raising tax, cutting wages and other expenditure to narrow the budgetary gap . Portuguese Govt.  Said that it met it’s target for 2010 budgetary deficit of 7.3%. Portugal repeatedly told that its deficit and debt are far lower than problematic countries and it neither suffering any property bubble nor  its  banks are problematic  like others. And some  officials from European commission said that there are no discussion on bailout of Portugal.
The problem with the EU is the  EFSF’s fund, now many proposals  came that the  440 billion Euro bailout fund to be increased, some said, some of ECB’S bond buying activities should be replaced by EFSF’s bond buying activities, other proposal is to reduce the interest of this  EFSF’s rescue loan, so that weaker nations benefited from it.
The problem is to boost the rescue loan or to improve the position of  EU nations, Germany needs to commit more. Though German chancellor said that they will stand by the EURO. While not only the ruling coalition but also many ordinary  Germans are not really eager to support many of this EU nations.
Euro-area finance ministers will discuss the bailout issue in next week meeting in Brussels.
So, are  Spain & Portugal episode over?  Many think that it is a matter of time for Portugal & Spain to join next after Ireland.
I think it is better to look on the latest  borrowing costs which proves lot of things. But it will be wrong to see the problem through the vision of some rating agencies and news reports.
Moody’s and  Standard & Poor’s expressed concern about deteriorating  fiscal condition of US  as such they didn’t  think that there will be any change in Sovereign debt rating of US. 
I was thinking what will happen if sovereign debt infection crosses  from one side of the Atlantic to the other side !

NOTE :  Please see the disclaimer of this blog.


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