In southern Europe, Moody’s downgraded Portugal to Baa1. The markets interpreted this as a sign that the nation would require a bailout within a few days. Portugal has been able to walk a fiscal tightrope for several months. It will be a miracle if the high wire act can continue now that prime minister Jose Socrates has left.
Also in southern Europe, Greece has presented a new austerity budget worth 25 billion euros over four years. It may not matter. The capital markets trade Greek paper as if the nation will default soon. If it does, there could be wave of new moves in the EU to require bond holders to carry some of the weight of sovereign restructuring. Ireland has already pressed that issue with owners of its banks.
In the southern US, Texas has joined the parade of states which have begun to push huge budget cuts based on downsizing of local government. The new budget anticipates expenditures of $165.4 billion over two years. That would require the elimination of 7,000 teaching jobs and a number of entitlement programs.
The move to cut budgets is further along in California. Governor-for-life Jerry Brown wants to move state inmates to country jails, the most original state austerity suggestion of the year
Douglas A. McIntyre
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