Europe Doesn't Get It: Portugal Could Be Next To Fall


The Portuguese are under some intense pressure to tap EU/IMF funds.

The euro fell to its lowest in four months against the US dollar, on deepened fears of a Euro Zone collapse due to its growing debt crisis.

Since there are bond auctions scheduled this week in Spain, Italy and Portugal, right now wasn’t the best time for this.

“In short, it is difficult to imagine a more negative backdrop for the upcoming auction” of government debt, said Simon Derrick, chief currency strategist at Bank of New York Mellon (Marketwatch)

The pressure of course comes from Germany and France who want to prevent the bloc’s debt crisis from spreading. To me, the EU leadership just doesn’t get it. If Greece had to get a bailout, and then Ireland had to get one, and now Portugal, they haven’t done a good job of containment. Last time I checked, three organs with cancer equals metastasis. And of course, if Portugal does seek a bailout, the market vultures will go attack Spain’s debt woes.


Prime Minister Jose Socrates said Portugal would meet budget goals, and still insists it doesn’t need aid. It reminded me of my drunk friend in college that always insisted on driving. It was just pride. Someone needs to teach these Europeans better ways of doing damage control. First off, yes the whole defensive posturing comes naturally. But it didn’t do much for Bear Stearns or Lehman, John McCain or the Fed.  Each of them reassured the investing public just before the bottom fell out. No coincidence. So if the German and French leadership want to quell the ongoing turmoil, they should use some finesse.

They established a rescue fund with EU and IMF moneys. Here’s something novel – how about every EU country draw from it at the same time, instead of in this piecemeal fashion.  Just like when the Fed opened up the discount window in late 2008, every bank, including big daddy Goldman Sachs, took funds. The EU need some serious PR lessons. Currency stability is about image. If it wasn’t, guess what? The US dollar would be pretty much worthless. If they all get funds as a group, even healthy nations, then the world sees the leadership as on top of things, no one nation gets assaulted, and likely, yields stay down for the group.

It took Greece 16 days and Ireland 20 days to request EU/IMF aid after 10y yields on their debt pierced the 7% level. That happened for Portuguese sovereign bonds Monday morning. If all the countries went up to and got EU aid together, including some of the ones investors aren’t worried about yet (i.e. Belgium), then these sovereign debt auctions would probably go a lot better for the PIIGS.

Until the European Union acts like a Union, I think it’s best to be short Euro. Or better yet, I might go long commodities, in Euro denominated securities.


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