Portugal - Back In The Penalty Box
Submitted by Mark J. Grant, author of Out of the Box,
"Last night, Darth Vader came down from planet Vulcan and told me that if I didn't take Lorraine out that he'd melt my brain."
Mário Alberto Nobre Lopes Soares is a Portuguese politician who served as Prime Minister of Portugal from 1976 to 1978 and from 1983 to 1985. He was then the President of the Republic from 1986 to 1996. He is a senior and well respected statesman and hardly a voice of either the radical left or right.
Official projections put Portugal's debt to GDP at more than 124% by the end of this year. Utilizing Europe's continuing fantasy accounting; this is the number that Portugal and the EU posts for general consumption. However by counting liabilities and using American addition, subtraction and division I come up with a number of about 236%. The problem, as I keep reminding everyone, is that choosing not to count debts does not erase them and so time passed, some of the liabilities came due, and Portugal is on the verge of bankruptcy once again.
It was March 3, 2011 and the title of Out of the Box was, "Portugal Goes Down." Then in May 2011 Portugal did bite the dust and received $101 billion in bailout funds. Since then it has bobbed up, devastated its citizens with trying to meet the demands of the European Union and been hailed by both Brussels and Berlin for its imposition of the mandated austerity measures. Today I can assure you; Portugal is going down again.
Now Mr. Soares, over the weekend, took a different and surprising tact. He has called for all of the opposition parties in Portugal to "bring down" the government. Specifically he said, "In its eagerness to do the bidding of Senhora Merkel, they have sold everything and ruined this country. In two years this government has destroyed Portugal. We absolutely have to end this austerity." He also said that Portugal will "never be able to pay its debts however much it impoverishes itself. If you can't pay, the only solution is not to pay."
Pretty strong words for this elder statesman!
Now in the recent round of easing debt extensions were granted to Ireland and Portugal but Portugal's was tied to the imposition of further austerity measures. This is just after the Supreme Court in Portugal declared certain austerity measures unconstitutional and blew $1.7 billion of them out the window and out of Portugal's budget.
The country was already the poorest in Western Europe, with a minimum wage of $630 a month.
Unemployment is the third highest in the Eurozone, with 17.4 per cent of the country out of work and a 37% unemployment rate for people under 25. Quite large tax increases have hit everyone hard, with train prices soaring by 25% and VAT on electricity leaping from 6% to 23%.
Now a careful reading of what the EU is now demanding reveals an actual shortfall of about $6 billion and where Portugal is going to come up with that is a good question. The Prime Minister may be one of the favorites of Europe but that is not exactly the case in his own country as politics are about to get very nasty. The debt extension was one thing but when Portugal lines up again at the window, which is coming shortly, one has to wonder what new one-off solution will be forthcoming this time. Will it be the depositors again transcribed in Lithuanian, the subordinated or senior debt of the country postulated in Slovenian or some new scheme? Given the politics of Germany at present I find it highly doubtful that the answer is going to be a hand-out courtesy of the taxpayers of other countries.
Grant's Rules 1-10, "Preservation of Capital" are flashing red! If you have exposure to Portugal I would be heading towards the exit doors. Failure to do so may be a quite expensive proposition.
"The itsy bitsy spider climbed up the water spout. Down came the Goblin and took the spider out."
-The Green Goblin