G3 Recap 11-08-10

Main Items:

  • PIGS:
  1. Greece: The Greek government won enough support in the first round of local elections that PM Papandreou will not be calling early elections. This is expected to be positive for Greek debt, but according to a poll conducted by a local TV, though eight out of ten Greeks do not favor an early election, 65% believe that there are "alternatives" to the EU-IMF rescue package, compared with 59% in May 2010.
  2. Portugal: China’s Hu: “We are available to support, through concrete measures, Portuguese efforts to face the impacts caused by the international financial crisis, and deepen and broaden our economic and commercial cooperation.”
  3. Ireland: Next Key dates for Ireland: On 11/15, the 4yr deficit plan will be presented. It is also expected to release data for the level of Irish bank borrowing from the ECB for October. In September the level totaled 118bn, vs 94bn for Greece.

Fed’s Senior Loan Officer Survey showed that while some banks are easing lending standards, demand for Commercial and Industrial loans actually declined.


  • EU Sentix Investor Confidence improved to 14 in Nov vs 10 expected and 8.8 previously


  • So Ireland is going to need a bailout, probably via the European Financial Stability Fund. With a nominal GDP of 228bn, it has committed to injecting an estimated additional 70bn into Irish banks to keep them solvent, while running a 16% budget deficit. It appears the government is gambling that by putting forth an aggressive budget deficit reduction plan, enough confidence will return to allow it to roll over its (and its banks’) debt. (it has already temporarily withdrawn from issuing sovereign debt) It currently has enough cash to last through April, although the government says it has enough through mid-2011. Essentially, the Irish government is hoping that Irish CDS will tighten enough by 1Q for it to go back to issuing debt. Odds are that it doesn’t, and we have a risk off event in 1Q as the EFSF gets activated.

    Historically, rescue packages and restructurings start getting implemented when CDS spreads near 1000. At the current rate of +200bps in 3 weeks, we could see something by year end.


2 thoughts on “G3 Recap 11-08-10

  1. Won’t we have (if we do, of course) a risk-off event before the EFSF activation, like it happened with Greece in spring, rather than after? Its activation kinda solves the problem for the time being (well, postpones it, at least).

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