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October 28, 2011

Monetary contraction in Portugal has intensified and mimics Greece and Italy pays highest price for debt since launch of the euro

1. Monetary contraction in Portugal has intensified at an alarming pace and is mimicking the pattern seen in Greece before its economy spiralled out of control, raising concerns that the EU summit deal may soon washed over by fast-moving events.

Data released by the European Central Bank show that real M1 deposits in Portugal have fallen at an annualised rate of 21pc over the past six months, buckling violently in September.

"Portugal appears to have entered a Grecian vortex and monetary trends have deteriorated sharply in Spain, with a decline of 8.4pc," said Simon Ward, from Henderson Global Investors. Mr Ward said the ECB must cut interest rates "immediately" and launch a full-scale blitz of quantitative easing of up to 10pc of eurozone GDP.

The M1 data - cash and current accounts - is watched by experts as a leading indicator for the economy six months to a year ahead. It has been an accurate warning signal for each stage of the crisis since 2007.


Data released by the European Central Bank show that real M1 deposits in Portugal have fallen at an annualised rate of 21pc over the last six months, buckling violently in September.




2. Fears over the ability of the eurozone bail-out to protect the region's embattled members have been heightened after Italy was forced to pay the highest price to issue debt since the launch of the euro.

Italy sold €8bn (£7bn) of 10-year bonds at 6.06pc, a level seen as unsustainable by analysts, in the first major test of market appetite since European leaders agreed steps to tackle the crisis.

Italian leader Silvio Berlusconi is seen as critically weakened and there are doubts he will be able to push through the austerity measures demanded by markets.

"[Italy] is still the bĂȘte noire of the whole eurozone problem," said Monument Securities strategist Marc Oswald.

In comments that appeared unlikely to calm concerns, Mr Berlusconi issued an extraordinary outburst against the single currency, blaming it for the scrutiny on Italy's finances. He described the euro as a "strange currency" that "has convinced nobody" and claimed that after Germany, Italy had the eurozone's strongest economy

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