Wednesday, November 24, 2010

Irish Rescue Accord Turns Investors' Focus to Spain, Portugal

Sovereign debt crises started in Iceland, Latvia, Hungary, Dubai, and reached the shores of Greece.  Ireland is the latest victim, with Portugal and Spain in the crosshairs of bond vigilantes.  For the forward-thinking, Italy and France will be next to catch the contagion.  Germany must be bewildered at the spreading collapse around them.  German taxpayers will force the break up of the Euro, in my opinion, because they are absorbing the brunt of the bailouts.  With IMF participating in bailouts, so are American taxpayers.

Even as EU leaders said Ireland’s bailout will stem contagion in the euro region, investors are turning their attention to Portugal, which hasn’t cut government spending and has barely grown for a decade. A rescue of Portugal may increase pressure on its high budget-deficit neighbor Spain, whose gross domestic product is almost twice the size of Portugal, Greece and Ireland combined.

After Portugal “the next question would be Spain and then Italy and then France and then the EU,” said Antonio Garcia Pascual, chief southern European economist at Barclays Capital in London. “Spain is a bit too big to be bailed out, the size of a rescue required would use up all the funds available and then you have Italy with contagion as well,” prompting “a situation where the euro itself is put into question,” he said.

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