Communication for Sustainable Development

Guilt By Contagion: Greece, Portugal, Ireland All Flashing Red

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It’s, well, a trifecta of European bailout worries, this morning, according to the Financial Times, which runs with news about Greece, Portugal and Ireland’s sovereign debt woes on its home page, with the news of the hour being Portuguese finance minister Fernando Teixeira dos Santos warning that the “risk is high” the country will have to turn to the international community for financial assistance.

Dos Santos said Portugal’s situation is not the same as that of Greece, but because of their membership in the EU, the countries are getting lumped together, as are their budget problems. “Markets look at these economies together because we are all in this together in the eurozone,” said Dos Santos, in a piece penned by David Oakley and Tony Barber.

Kerin Hope, meantime, notes that Eurostat, the EU’s statistical agency, forecast a much higher-than-expected budget deficit for Greece this morning. Greek prime minister George Papandreou said in a speaking engagement in Europe this morning that he thinks Germany’s push for treatment of indebtedness could “break the backs” of some European countries, especially Portugal and Ireland.

Ireland’s predicament, reported earlier, seems to involve a measure of national pride in refusing to ask for a direct bailout of the country’s finances.

But in a report today by Credit Suisse analyst Andrew Garthwaite, it seems likely all three will tap Euromoney. “We think that eventually the EFSF will be accessed (but not by Spain),” writes Garthwaite, opining that Spain’s problems are “sustainable,” unlike the other three.

On the bright side, “there is a near-zero chance of core Europe walking away from peripheral Europe,” concludes Garthwaite, given the cost of doing so might be much higher than bailout–on the order of $600 billion. The bailout will reduce borrowing costs to “sustainable levels,” Garthwaite, and the implied default rates for Ireland and Portugal of 36% and 30%, respectively, are too high.

Garthwaite advises staying away from Irish, Portuguese, Spanish and Greek equities, but says Germany and Switzerland, in “core” Europe, are probably undervalued. He thinks the Euro will probably appreciate to $1.46 over the next three months, from $1.3608 per Euro currently

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