Posts Tagged: government debt


Greek Prime Minister Alexis Tsipras denied on Friday that his country would have to seek a third international bailout when a four month extension to its current programme expires.

Mr Tsipras also said the government had requested a reduction in the country’s debt, even though EU/IMF creditors insist Greece must meet its obligations in full. “Some have bet on a third bailout, on the possibility of a third bailout in June. I’m very sorry but once again we will disappoint them,” he said in a televised speech to his Cabinet. “Let them forget a third bailout. The Greek people put an end to bailouts with their vote,” said Mr Tsipras, a radical leftist who won election a month ago on promises to scrap austerity and reform policies dictated by Greece’s foreign creditors.

Greece has already received two bailouts totalling 240 billion euros but fellow euro zone member Ireland said last week that it would have to negotiate a third programme.

Athens was forced to climb down on many campaign promises to secure a deal a week ago from the Eurogroup of euro zone finance ministers extending the bailout Mr Tsipras had pledged to ditch. >> Read More


If anyone has stopped to ask just why global central banks are in such a rush to create inflation (but only controlled inflation, not runaway hyperinflation… of course when they fail with the “controlled” part the money paradrop is only a matter of time) over the past 5 years, and have printed over $12 trillion in credit-money since Lehman, the bulk of which has ended up in the stock market, and which for the first time ever are about to monetize all global sovereign debt issuance in 2015, the answer is simple, and can be seen on the chart below.

It also shows the biggest problem facing the world today, namely that at least 9 countries have debt/GDP above 300%, and that a whopping 39% countries have debt-to-GDP of over 100%!

>> Read More


Leaders of embattled mainstream European left parties met in Madrid on Saturday seeking to regain lost ground as they tried to strike a balance between “suicidal austerity” and financial “responsibility” at a time when debt-racked Greece is trying to renegotiate a bailout deal.

The heads of socialist and social democratic parties, threatened by extreme-right parties on the one hand and radical leftists like Syriza in Greece and Podemos in Spain on the other, tried to strike a tone of compromise particularly with relation to the economy in a bid to make gains in polls.

“We cannot afford to have public deficits and they have to be reduced because we are responsible for our future generations,” French Prime Minister Manuel Valls said on the sidelines of the meeting.

“We need to reduce sovereign debt but we cannot reduce the public debt without growth and employment,” said European Parliament President Martin Schulz, a German social democrat. >> Read More


Fitch Ratings has downgraded Austria’s Long-term foreign and local currency Issuer Default Ratings (IDR) to ‘AA+’ from ‘AAA’. The Outlooks are Stable. The issue ratings on Austria’s unsecured foreign and local currency bonds have been downgraded to ‘AA+’ from ‘AAA’. Fitch has affirmed the Short-term foreign currency IDR at ‘F1+’ and Country Ceiling at ‘AAA’.

The downgrade of Austria’s foreign and local currency IDRs reflects the following key rating drivers and their relative weights:

General government debt in Austria will reach a higher peak than previously thought and remain elevated for longer. This will significantly reduce the shock-absorbing capacity of the sovereign. The general government debt ratio (GGGD) is expected to peak around 89% of GDP in 2015, higher than all sovereigns in the ‘AAA’ category besides the US and in line with the UK (AA+/Stable). Fitch previously stated 80%-90% to be the upper limit of GGGD compatible with retaining a ‘AAA’ rating, provided the ratio is then placed on a firm downward path and other fundamentals are of the highest credit quality. Within a short space of time the debt dynamics of Austria have deteriorated significantly. Only 18 months ago, Fitch expected Austria’s debt ratio to peak around 75% of GDP in 2013/2014 and then decline to around 70% by 2017. At the time the Austrian government expected debt to peak at 74% before falling back to 67%. Recent upward revisions to the debt ratio mostly reflect the impact of bank restructuring on public finances. Since the 2008-09 crisis, the progress with the restructuring of medium-sized banks that fell into serious distress has been slow. >> Read More


 Fitch Ratings has downgraded Ukraine’s Long-term foreign currency Issuer Default Rating (IDR) to ‘CC’ from ‘CCC’ and affirmed its local currency IDR at ‘CCC’. The issue ratings on Ukraine’s senior unsecured foreign currency bonds have been downgraded to ‘CC’ from ‘CCC’, while the senior unsecured local currency bonds have been affirmed at ‘CCC’. The Country Ceiling has been affirmed at ‘CCC’ and the Short-term foreign currency IDR at ‘C’.

The downgrade of Ukraine’s Long-term foreign currency IDR to ‘CC’, which indicates that a default of some kind appears probable, reflects the following factors and their relative weights:

The new IMF programme announced on 12 February 2015 will help to close Ukraine’s financing gap, but an associated restructuring of privately-held external debt appears increasingly probable. Sovereign creditworthiness has deteriorated. The consolidated fiscal deficit, including losses of state energy company Naftogaz, reached 13% of GDP in 2014. We estimate that direct and guaranteed debt rose to 72% of GDP in 2014. Conflict and economic weakness have led to large additional financing needs beyond those envisaged in Ukraine’s IMF programme agreed in April 2014. >> Read More


A Greek exit from the euro would see the euro collapse like a house of cards, Finance Minister Yanis Varoufakis warned in comments that triggered a spat with Italy.

“Greece’s exit from the euro is not something that is part of our plans, simply because we believe it is like building a house of cards. If you take out the Greek card, the others will collapse,” Varoufakis said in an interview with Italian public broadcaster RAI that was aired on Sunday.

Varoufakis also incurred the wrath of his Italian counterpart Pier Carlo Padoan by comparing Italy’s problem with its large public debt to those of Greece.

“Italian officials… have approached me to say they are supportive of us but that they cannot tell the truth both because Italy risks bankruptcy and they fear the consequences with Germany,” he said.

“A cloud of fear has hung over Europe in recent years. We have become worse than the former Soviet Union.”

Padoan responded with a tweet calling Varoufakis’s remarks misplaced and insisting that Italy’s debt was “manageable.”

Italy’s debt mountain represents just over 130 percent of GDP, compared to 175 percent for Greece.

Quizzed by Italian reporters attending the G20 meeting in Istanbul on Monday, Padoan played down the clash.

“We have had a chat about it and exchanged some messages. There is no problem, and even less so on a personal level,” Padoan said.

“Italy’s objective is to find a shared solution to Greece’s situation, starting with the eurogroup meeting in Brussels on Wednesday,” he was quoted as saying by the AGI news agency.

“The European institutions are very open to finding a solution in everybody’s interest. For the moment there is no plan B. Before anything else we must see what plan A is.”


What happens when Greece exits from the euro area?

Were Greece to be forced out of the euro area (say by the ECB refusing to continue lending to Greek banks through the regular channels at the Eurosystem and stopping Greece’s access to enhanced credit support (ELA) at the Greek central bank), there would be no reason for Greece not to repudiate completely all sovereign debt held by the private sector and by the ECB. Domestic political pressures might even drive the government of the day to repudiate the loans it had received from the Greek Loan Facility and from the EFSF, despite it having been issued under English law. Only the IMF would be likely to continue to be exempt from a default on its exposure, because a newly ex-euro area Greece would need all the friends it could get – outside the EU. In the case of a confrontation-driven Greek exit from the euro area, we would therefore expect to see around a 90 percent NPV cut in its sovereign debt, with 100 percent NPV losses on all debt issued under Greek law, including the debt held, directly or directly, by the ECB/Eurosystem. We would also expect 100 percent NPV losses on the loans by the Greek Loan Facility and the EFSF to the Greek sovereign.

Consequences for Greece >> Read More


Alexis Tsipras, the new Greek prime minister, has insisted he will not seek an extension to the country’s current bailout, putting his leftwing government on a collision course with its creditors in the run-up to this week’s EU summit.

“This government isn’t justified in seeking an extension … The bailout has failed,” a defiant Mr Tsipras said in a speech to parliament on Sunday night setting out his government’s policy priorities.

He said Greece would “pursue a new agreement with our partners, a bridge agreement until June” that would provide a breathing space to negotiate “a stable and balanced arrangement …. that would not condemn us to further austerity.”

Many observers expected a policy switch to be announced in Sunday’s statement after Mr Tsipras and his finance minister Yanis Varoufakis failed to win support last week from other eurozone leaders for a restructuring of Greece’s €315bn foreign debt during a first round of visits to European capitals. >> Read More


Sanctions on Russia over its actions in Ukraine have compounded the impact of oil’s plunge but Moscow may have the financial buffers to hold out for two years without a change in policy.

European governments meet next week to review the sanctions, imposed after Russia annexed Crimea last March and threw its support behind pro-Moscow separatists in eastern Ukraine. The West’s response centered first on financial and travel restrictions on key individuals but by mid-year it had effectively cut off overseas funding to corporate Russia.

Although there was scepticism at the outset, these measures have hurt, particularly combined with the parallel collapse in oil, Russia’s major export. Their impact has far outweighed Russian counter punches to European agricultural imports or the cancellation of its South Stream gas export pipeline through southern Europe.

“The big hit to Russia has really come from the oil price but extra shrapnel has come from sanctions,” said Chris Weafer, senior partner at Macro-Advisory consultancy in Moscow.

Many dispute U.S. President Barack Obama’s assertion that Russia’s economy is now ‘in tatters’ — a jobless rate of just over 5 percent and total external debts of about 30 percent of national output are just two raw numbers that would make some European leaders jealous. But the fabric has been badly damaged. >> Read More

The $100 Trillion Global Debt Ponzi Scheme

03 February 2015 - 10:40 am

If you are an investor, your big concern should not be about stocks… but what happens when the bond bubble goes bust.

For 30+ years, Western countries have been papering over the decline in living standards by issuing debt. In its simplest rendering, sovereign nations spent more than they could collect in taxes, so they issued debt (borrowed money) to fund their various welfare schemes.

This was usually sold as a “temporary” issue. But as politicians have shown us time and again, overspending is never a temporary issue. Today, a whopping 47% of American households receive some kind of Government benefit. This is not temporary… this is endemic.

All of this is spending is being financed by borrowed money… hence, the bond bubble, the biggest bubble in financial history: an incredible $100 trillion monster that is now growing by trillions of dollars every few months.

We do not write that point for effect. The US alone issued over $1 trillion in NEW debt in an eight week period towards the end of 2014. >> Read More

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Technically Yours,
Team ASR,
Baroda, India.