The Mad Euro Project Just Got A Lot Madder

Saturday, November 21, 2015
By Paul Martin

Feeding a Monstrous Pile of Debt.

by Don Quijones
WolfStreet.com
November 20, 2015

Under Mario Draghi’s radical stewardship, the ECB seems determined to push the limits of monetary experimentation. And by all accounts, it’s succeeding.

This week saw numerous eurozone governments sell bonds at negative rates, an economic anomaly that has no place in a rational world. Even some mainstream economists still seem confused by it. Unfortunately, thanks to the tireless efforts of central bankers around the globe, we stopped living in a rational world a long time ago.

Feeding a Monstrous Pile of Debt

The latest government to enjoy the perks of negative-interest-rate living is Portugal. That’s right, Portugal, a country that four years ago was selling 12-month notes with an average yield of 6% amidst fears about the government’s ability to service its monstrous debt pile, is now able to sell €1.1b billion of 12-month debt at a -0.06% yield. In other words, if investors hold the bonds to maturity they will actually pay the Portuguese government – a government that doesn’t yet exist – for the privilege of holding its debt.

This is despite the fact that Portugal has not only a perpetually stagnating economy but also one of the highest debt-to-GDP ratios in the world. After four years of so-called “austerity,” Portugal’s combined public and private debt is now a mind-blowing 530% of GDP, with total corporate debt expected to reach 240% of GDP.

Most of the country’s public debt is foreign owned, and while there aren’t any reliable figures on who exactly owns the private debt, it is a fair bet that it is also mainly foreigners (and, of course, local banks). In other words, the country’s heavily-levered corporate sector is sitting upon the granddaddy of tick-tocking debt time bombs.

Even compared to the total debt amassed by all the other rickety economies of Southern Europe, Portugal is punching well above its weight. Italy has a total debt ratio of 369.5% and Spain, 418.3%. Even Greece, a country that barely has an economy left to speak of, has a debt ratio (354%) significantly lower than Portugal’s.

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