From the NY: Students Covering Bigger Share of Costs of College or
Public Universities Relying More on Tuition Than State Money
Here is the full report onTrends in College Spending 1998-2008
Picking Up The Tap
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Monthly Archives: January 2011
Optimum Currency Areas
A great survey of the History of OCA Theory. Here is the Readers Digest version. Barry Eichengreen applies it to the Euro.
Denial Tracker II (Very Funny)
The Wall Street Journal is very funny:
Portugal Bailout Denial: Sure Sign One Is Coming Soon?
Portugal’s prime minister said Tuesday that the country won’t need a
bailout. If history does in fact repeat itself, this means Portugal’s
probably going to be asking for help in a matter of days.
During the debt crisis that’s plagued Europe for nearly a year,
government leaders have made a habit of publicly declaring that their
countries can fight their own battles shortly before asking for help.
A look at what happened when Ireland and Greece officials made
similar statements last year shows that when those two European
sovereigns declared they were fine on their own, it took less than a
week for them to start sounding a different tune. Within a month of
their statements, both had done full about-faces and sought financial
aid from the European Union and International Monetary Fund.
Ireland’s minister for European affairs, Dick Roche,
said Nov. 15 that “there is no need for us to trigger any [financial
support] mechanism; we haven’t triggered any mechanism; there’s been no
political discussions about triggering a mechanism.”
It was exactly six days later that Irish Prime Minister Brian Cowen formally applied for aid from the EU and IMF bailout fund.
Greece set the trend eight months earlier, when Greek Prime Minister George Papandreou
said March 18 that “we want to do it ourselves and, for that reason, we
are not seeking financial help.” Five days later, Finance Minister George Papkonstantinou
said, “There must be some sort of mechanism to ensure stability,” a
statement that some saw as an about-face. By mid-April, Greece had
formally requested the European Union-IMF bailout.
So, don’t be surprised if Portugal is asking for help next week, even as Portuguese Prime Minister Jose Socrates
said Tuesday that the country “won’t ask for any financial help because
it’s not necessary.” Indeed, spreads on Portuguese sovereign debt swaps
reached record-wide levels Tuesday — an indication that fears about the
country’s fiscal health were running high — before bond-buying by the European Central Bank helped calm down the market.
Just don’t assume that these sudden stance shifts are unique to
Europe. Remember how many U.S. financial institutions proudly said they
didn’t need help from the U.S. government in 2008? We all know how that
ended.
Denial Tracker I
The yield on the Portugal 10-year bond is at 7.1%…
From Marcus Walker at the WSJ: Portugal's Test of Debt Market Looms This Week
Portugal hopes to raise new funds in a bond auction on
Wednesday … European Union governments including Germany and France
have for weeks been urging Portugal to apply for rescue loans from the
joint EU-International Monetary Fund bailout facility …the EU's deliberations over Portugal haven't reached the intensity seen
ahead of the Greek and Irish rescues … That could change quickly,
however, should Portugal's borrowing costs continue to rise. Euro-zone
finance ministers are set to meet Jan. 17, by which time the market's
appetite for Portuguese debt should be clear.
And here is the FT round up:
Portugal and the EFSF: déjà vu all over again
Reuters reports this morning that discussions have
started for Portugal to seek fund under the EFSF/IMF scheme, as
pressure on Portuguese and other eurozone peripheral bonds increased on
Friday. According to the Reuters report, preliminary discussions have
taken place since July about a scheme totalling between €50bn and
€100bn, according to an unnamed source. Merkel’s spokesman officially
denies that any pressure has been brought on Portugal (which is
obviously not true). The article also said the EU was expecting a
“battle of Spain”, which would be the real test of the system.
The official Portuguese reaction continues to be one
of denial. Portuguese Prime Minister José Socrates reiterated that the
government is doing its homework and that his government will meet its
2010 budget target. Jornal de Negocios
quotes Socrates saying: “We have better results in terms of receipts,
better results in terms of expenses and this provides the strongest
signal of confidence to the international markets that we can provide”.
We heard the same messages before Greece and Ireland were bailed out.
Pedro Passos Coelho, the leader of the opposition, is quoted by Reuters
as saying with that, with an EU bailout, the government would not be in a
position to continue ruling as its policies would have failed. In
Portugal, the opposition is obviously using the threat of a bailout for
political point scoring.
In its attempt to alleviate the pressure of the
markets, the Portuguese government is looking into alternatives to debt
auctions. Diario Publico (hat tip El Pais) reported that the Finance Ministry will proceed with a direct sales operation, possibly towards with China.
Spanish newspapers reported that Portugal would
inevitably have to seek international financial help. (To contain
contagion, Spain wants Portugal to tap the funds sooner rather than
later.)
Spain is nervously awaiting its first bond issue of 5 year bonds, El Pais reports. Italy will also launch a bond that same day.
Bloomberg
cites an article in today’s Handelsblatt saying that Germany might be
ready to discuss expanding the €750bn rescue facility at the next EU
summit. Der Spiegel
reported that this could coincide with an agreement on aid for
Portgual. “No decision has been taken about widening the rescue fund,”
Steffen Seibert, Merkel’s chief spokesman told.
Out Of The Box: All Out Sovereign Default
Willem Buiter is provocative, but he may be correct. Any country other than the US or Japan would have seen capital flight in response to their economic crises. But in a world of risk, both countries experienced capital inflows because they were seen as the sovereign of last resort, or, the least risky of all risky assets. If Buiter is right, what will be the new save asset?
Sovereign Debt Unsafe, Default Concern Spreads to U.S., Japan, Buiter Says
Bloomberg, By – Jan 7, 2011
Fears of a sovereign default are “manifest” in Europe and will soon spread
to Japan and the U.S.
as governments struggle to control deficits, according to Citigroup Inc.
economists led by former Bank of England policy maker Willem Buiter.
“Despite the recent drama, we believe we have only seen the opening and
second act, with the rest of the plot still evolving,” London-based Buiter and
colleagues wrote in a research note published today. “There is absolutely no
safe” sovereign.
The warning comes after the threat of default forced Greece and Ireland to
seek bailouts and as borrowing costs for Portugal this week surged at a
six-month bill sale as investors speculate it will be next to seek aid.
Elsewhere, U.S. lawmakers
last month extended tax cuts and are now wrangling over whether to raise the
nation’s debt limit, while Japan’s
public debt is set to exceed twice the size of the economy this year.
“The U.S. and Japan likely cannot continue to ignore the
issues of fiscal sustainability,” said the Citigroup economists, who added that
it’s “only a matter of time” before the U.S. government can only fund
itself through debt issuance at “significantly higher interest rates.”
Concern of default will spread especially if the definition is extended
beyond violating legal contracts to include the infliction of losses on
bondholders by deliberately engineering inflation or currency depreciation, the
economists said.
Several debt restructurings will occur in the euro area in the next few
years and the current system of providing liquidity won’t be enough to prevent
them, the economists said. Greece’s
government is “manifestly insolvent,” they said.
European Debts
Western European government bonds are now riskier than emerging-market debt
for the first time as investors brace for $1.1 trillion of borrowing from
euro-region nations this year.
For a lasting solution, the sovereign-debt crisis must be addressed at the
same time as weaknesses in the region’s banking system, the report said. In Ireland, for
example, the recent aid package will “buy time,” yet fails to address fault
lines in the country’s banking system and highlights the need for a
continent-wide regime to deal with them, it said.
Portugal is likely to be
the next country to access the regional rescue fund soon, yet the almost $1
trillion system of support “looks insufficient” to prevent a speculative attack
on Spain
or to fund it completely for three years, the economists said.
Spain
Contingency
In a separate report also published today, JPMorgan Chase & Co.
economist David Mackie said there is concern that if Spain
seeks help “the current arrangements will not be able to contain the crisis”
and that doubts about whether debt sustainability can be achieved without
restructuring would linger and contagion could spread to Italy and Belgium.
“If that were to happen, euro-area policy makers would need to enlarge the
current facilities,” said Mackie, noting that could involve moving to a system
of debt guarantees and reducing the borrowing costs on the emergency cash.
The chance of the 17-nation euro area breaking up is nevertheless “extremely
unlikely and would be an economic disaster,” said Buiter’s team, adding that
exiting the region would be “irrational” for fiscally weak countries such as Greece.
Denial Ain’t Just A River In Egypt III
Denial Ain’t Just A River In Egypt II
We've had part I of the saga, and now – like night follows day – we have the Portuguise version (via Reuters):
Germany and France
want Portugal
to accept aid
Reuters, (by Brian Rohan; Editing by Alison Birrane)
Fri, Jan 7 2011
BERLIN
(Reuters) – Germany and France want Portugal to accept an international
bailout as soon as possible in order to prevent its debt crisis spreading to
other countries, German magazine Der Spiegel reported on Saturday.
Without citing its sources, the magazine said
government experts from both European heavyweights were concerned Lisbon will soon not be
able to finance its debt at reasonable rates, after its borrowing costs rose at
the end of last year.
Berlin and Paris also want euro zone
countries to publicly commit to do whatever it takes to protect the bloc's
single currency, including topping up a 750 billion euro ($968 billion) rescue
fund if necessary.
Portugal
is viewed by many economists as the peripheral euro zone country that is most
likely to follow Ireland and
Greece
to seek an international bailout as it grapples to cut its debts and borrowing
costs. It holds its first bond auction of the year next week.
Unlikely the Chinese will be able to help. Although I am sure they are interested of averting a euro disaster (aka depreciation) and have plenty of cash to buy the euro to keep the yuan cheap. There are only two questions: how long will it take until Portuguise debt is being "restructured" in a European aid program, and how many times do we need to hear the Portuguise finance minister deny that such a program is needed.