The Corner

Dominó ?

Even as the talks drag on over the “voluntary ” restructuring of Greek debt, nervous investors are turning their attention to Portugal. Amid talk in Portugal that that country might need another bailout, its borrowing costs are at euro-area highs.

Reuters has some background and details:

Loans to the private sector in Portugal fell the most in one month since the European Central Bank began logging the data in October 1997, underscoring the trouble the country is in as it faces being sucked further into the sovereign debt crisis.

Portuguese government bond yields hit new euro-era highs on Friday on growing investor belief that the country may follow in Greece’s footsteps and require a second EU/IMF bailout.

The 10-year Portuguese bond yield rose by around 25 basis points on the day to 15.36 percent, while the five-year yield was up 24 bps at 20.48 percent.

Banks gave the country’s private sector, excluding bank-to-bank lending, 4.898 billion euros less in loans in December than in the previous month, the biggest monthly drop since the beginning of the statistics in October 1997, ECB data showed.

In particular, corporates took less in loans. The flow of loans to non-financial companies was 2.983 billion euros in the minus column, also a new record drop. The total amount of outstanding loans to the private sector in the country was 270.198 billion euros at the end of last year, ECB data showed.

On the other hand, the picture so far as bank deposits are concerned is somewhat more encouraging:

Private-sector deposits in Portugal and other countries in the middle of the debt crisis fared much better, however. In Portugal, they fell 0.5 percent to 232.9 billion.

Deposits in Greek banks grew for the first time in five months, to 180.1 billion in December from 179.6 billion in the previous month, but are still about 26 percent below their peak in December 2009.

Deposits also inched up in Italy, while they fell marginally in Spain and Ireland.

Monthly fluctuations in the figures are common, though such sharp consecutive drops in countries with stable banking systems are unusual.

Mass depositor panic could take the euro zone to a place where it most definitely does not want to go, so these data must come as a relief in Frankfurt and Brussels. In the Italian and Greek cases (if sustained) they presumably reflect the belief/hope that the euro zone’s leadership will look more kindly on Greece and Italy now that it has its own proxies installed in Athens & Rome. Time will tell.


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