Europe Spins, Portugal Goes To Washington

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by: Carlos X. Alexandre

As the appearance that all is well in the old continent dominates, unavoidable economic troubles continue to percolate, while the official word paints a rosier scenario, as reported by Reuters.

German Finance Minister Wolfgang Schaeuble and his French counterpart Francois Baroin said on Tuesday that the worst of the eurozone crisis appeared to be over, but warned member states that was no excuse to skimp on difficult reforms.

The keyword here is "appeared" and in due time the appearances will prove to be false. Meanwhile, Angela Merkel was a bit more cautious, as reported by Bloomberg, highlighting the fact that new obstacles will surface in the years to come.

German Chancellor Angela Merkel said that European efforts to resolve the debt crisis are making progress, even as "imbalances" in euro-area economies show that the task is far from complete. "We've come a good way along the mountain path, but we're not completely over the mountain," Merkel told reporters in Rome late yesterday after talks with Italian Prime Minister Mario Monti. "I suspect that in the next few years there will continue to be new mountains - there won't be a celebratory event in which we say we're over the mountain and now we can sit among the trees and say that we've done it."

The sad state of affairs is that the search for reliable information has become a full time job, because the true underlying facts aren't forthcoming, and The Wall Street Journal pointed out that issue in style with the article "The Ever-Growing Greek Bailout." In short, it's still a game of smoke and mirrors.

There are three issues we want to address: One, the actual size of the Greek bailout. Hint: It's not €130 billion but €138.2 billion. Second, the participation of the IMF in this bailout and how it compares to the previous one. Hint: it's smaller than you thought. And third, the proportion of the bailout earmarked for Greece's financing needs rather than the debt restructuring or bank recapitalizing. Hint: it's not large.

Furthermore, the 2020 milestone has become what appears to be a footnote, and 2030 is now the new 2020, according to Reuters.

Greece's second bailout package can make its debt sustainable, but Athens will have to stick firmly to agreed policies until 2030 and may need more money after 2014, an updated debt sustainability analysis by international lenders shows.

But not to worry, because Reuters reported that the "eurozone may up bailout fund capacity to near 700 billion euros," according to unnamed officials, and, once again, the keyword is "may."

While European bureaucrats toil away preparing for the next leg, Portuguese Finance Minister Vitor Gaspar packed his gear and traveled up a different mountain. He's in Washington to "explain" the Portuguese budget adjustment to Timothy Geithner and Ben Bernanke, according to SIC, a Portuguese TV channel. Why exactly there's a need to "explain" Portugal to Washington is somewhat puzzling, and one would think that a trip to Brussels would be inline with the standing protocol.

Considering the austerity measures that are imposed on the Portuguese population, with many still to come, Mr. Gaspar refused to lower taxes on gasoline, now selling for about $8.70 per gallon. The minister claims that there's no margin and the top priority is to reduce the deficit. The gasoline price's tax share is 56%, according to Economico.

Spain continues to struggle with deficits, unemployment and the political sale of austerity measures, while the country is advised to squeeze a bit more to comply with the new budget guidelines. Meanwhile, the Spanish debt's wheel of fortune continues to spin, with Bloomberg adding perspective.

Spanish banks increased holdings of the nation's bonds to 202 billion euros in December, from 178 billion euros in November, Treasury data show. They borrowed 152 billion euros from the ECB in February, three times as much as they were taking a year ago.

Then there's the fixed, or somewhat forgotten, Irish economy, and two months ago The Irish Times reported that Ruairi Quinn, Ireland's Minister of Education - yes, you read that right - felt that the country could reenter the bond market by the end of 2013. Last week Reuters reported that Michael Noonan, Ireland's Finance Minister, presented a different idea to the troika.

On a visit to Paris, Noonan said Dublin sought in negotiations with the European Central Bank, the European Commission and the International Monetary Fund to replace the promissory note with another instrument, lengthen the maturity and "keep the interest rate quite low."

That is the first hint that Greek style "debt adjustments" are a commodity in high demand, and the soap opera continues with no end in sight.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.