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Things In Portugal Are Getting Worse

Tyler Durden's picture


Despite media rumors that the Portuguese foreign minister Portas, who resigned on Tuesday precipitating a complete collapse in Portugual bond prices and ushering in the latest European political crisis, has agreed to stay in the government as a Deputy PM and economy minister (nothing like some title inflation-pro-quo), things in Portugal are rapidly turning from bad to worse. To wit:


The main reason for the collapse appears to be the near consensus developing this morning that no matter what the government does at this point, a second bailout of the small country is inevitable.


Take what UBS economist Gyorgy Kovacs and strategist Justin Knight wrote in a client note:

  • Political crisis makes Portugal’s exit from EU78b Troika program in 2014 and subsequent return to bond markets unlikely write
  • A second bailout may be necessary if Troika program delayed
  • Austerity fatigue in population with country in third year of recession and unemployment above 18%
  • Continued political instability may require primary market purchases by ESM of Portuguese debt in 2014
  • ECB would avoid OMT as beneficiary country must be able to access open market, likely only after several bond issues

Then there was also Bloomberg's economist David Powell:

Portugal appears increasingly likely to require a second bailout package from its international creditors.


Investors seem to be losing confidence in the sustainability of the Iberian nation’s public finances. The spread between the 10-year sovereign yields of Portugal and those of Germany has risen by 157 basis points to 624 basis points since Monday. The nation has moved increasingly toward insolvency since it was pushed out of financial markets. The debt-to- GDP ratio was projected by the IMF, in its seventh review of the country under its bailout package, to reach 122.9 percent by the end of this year versus 108 percent at the end of 2011, the year during which Portugal lost market access. That report was published last month.


The fund’s economists forecast a peak of that ratio to materialize next year. They looked for a rise to 124.2 percent by the end of 2014 and a decline to 123.1 percent in 2015 and 120.5 percent in 2016.


The forecasts are dependent on the country meeting its budget deficit reduction targets. The IMF staff looked for the primary budget deficit, a measure that excludes the interest costs of government debt, to decline to 1.1 percent of GDP this year from 2 percent of GDP last year. They also forecast the deficit to be transformed into a surplus of 0.4 percent of GDP in 2014, 1.8 percent of GDP in 2015 and 2.4 percent of GDP in 2016.


Those numbers would have contributed to the total budget balance starting to be in positive territory as early as this year. That figure was forecast to be in surplus by 0.8 percent of GDP in 2013, in deficit by 1.4 percent of GDP in 2014, and in surplus by 1.2 percent of GDP in 2015 after including “residual” factors — which encompass asset changes — privatization receipts and payments on government debt. That surplus seems unlikely to materialize.


The secretary of state for the budget, Luis Morais Sarmento, announced on June 28 that the budget deficit widened to 7.1 percent of GDP in the 12 months through March. That compared with a deficit of 6.4 percent for the calendar year of 2012 and 4.5 percent in the 12 months through March 2012, according to the country’s statistics agency.


The finance minister quit after failing to meet the IMF targets. Vitor Gaspar wrote in his resignation letter on Monday: “The repetition of this slippage undermined my credibility as finance minister.” He added: “The risks and challenges of the near future are enourmous.”


One of the major challenges is the stabilization of the economy. Output has declined for 10 consecutive quarters. The most recent year-over-year measure of GDP growth stood at minus 4 percent. Total production is 8.6 percent below its pre-crisis peak. It is at the lowest level since 2000,  indicating more than a “lost decade”.


The banking system also appears to be facing serious funding problems. The year-over-year rate of growth of deposits, excluding those of monetary financial institutions and central government, stood at minus 7 percent in May.


Portugal will probably be unable to access the ECB’s Outright Monetary Transactions program to facilitate its return to financial markets. Mario Draghi said at the monthly press conference in March: “You know that OMTs cannot be used to enhance a return to the market.”


He elaborated in April: “I have defined what we mean by the return to the markets by a country. It has to be able to issue across the whole maturity spectrum, in sizeable amounts to a variety of buyers, and we have also specified other features, which continue to apply.”


That suggests the Troika may be asked for more financial assistance. The current program is scheduled to be wrapped up by next spring with the 12th and last review to be published on May 15.

A visual summary of the Portuguese situation comes courtesy of Bloomberg Brief's Niraj Shah:

And, of course, there is the GDP...

Luckily, Portugal has the ECB's OMT to save it should the country which the crisis had forgotten for so long, suddenly finds itself with an inverted yield curve. Oh wait...

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Thu, 07/04/2013 - 08:04 | 3720855 put_peter
put_peter's picture

Another 10% haircut priced in... Next...

Thu, 07/04/2013 - 08:21 | 3720882 YuropeanImbecille
YuropeanImbecille's picture

For the love of god, please let portugal finally collapse or as Barosso wants confiscate all private property.


I am sick and tired of this zionist inspired 'incrementalism' by cooking the fucking frog slowly.

Thu, 07/04/2013 - 08:48 | 3720924 put_peter
put_peter's picture

Barroso as far as i understand is (and has been) a full-blown communist.

Thu, 07/04/2013 - 08:57 | 3720940 malikai
malikai's picture

If I was portuguese, I'd be pretty worried about my bank account right now.

Thu, 07/04/2013 - 09:04 | 3720956 put_peter
put_peter's picture

You are thinking of bail in? Noooooo impossible ;)

Thu, 07/04/2013 - 09:21 | 3720980 j0nx
j0nx's picture

Yep. Any Purtuguese who still has money in a bank there deserves what's headed their way.

Thu, 07/04/2013 - 15:29 | 3721856 thisandthat
thisandthat's picture

Most accounts in Portugal are under 10k, few under 50k, even less up to 100k - less than 2% of accounts account for over 40% of deposits. You won't see me worried about them...

Thu, 07/04/2013 - 09:16 | 3720972 Rip van Wrinkle
Rip van Wrinkle's picture

And once a communisy.....always a communist.

Thu, 07/04/2013 - 10:04 | 3721049 Seistante
Seistante's picture

Of course not!

Thu, 07/04/2013 - 14:53 | 3721799 thisandthat
thisandthat's picture

LOL you credit him too much...

Thu, 07/04/2013 - 08:57 | 3720942 CPL
CPL's picture

Too low...go higher.  Much higher.


You know who lives in Portugal and has money.  It's certainly not the Portuguese overthe past five years.  Brits and Germans with money and those outrageous timeshare schemes they fob on well heeled suckers.  (and people think Florida real estate can be shady ...)

Thu, 07/04/2013 - 08:06 | 3720857 nmewn
nmewn's picture

2013 battle cry...Remember the Cypriots!!!

Thu, 07/04/2013 - 08:58 | 3720945 CPL
CPL's picture

34%  Excelsior!! 

Thu, 07/04/2013 - 09:03 | 3720953 disabledvet
disabledvet's picture

apparently Portugual itself will do the confiscating this time. http://www.youtube.com/watch?v=WO23WBji_Z0 take that Eurogroup. (how's this for American Opera Europe? not sophisticated sophisticated enough? hehehehehehe.)

Thu, 07/04/2013 - 08:10 | 3720866 Atomizer
Atomizer's picture

The solution is quite simple. Existing Government doles are too costly to sustain the present financial infrastructure demands.

Thu, 07/04/2013 - 08:29 | 3720890 Acet
Acet's picture

Portugal has a primary budget deficit.

It seems to me that the solution is quite simple: default.

Ideally the country would exit the Euro and devaluate to regain competitivity.


I've recently been in Portugal for a couple of weeks, which included travelling through the countryside. As it turns out at some levels the country keeps improving: for example, plenty of land that was underused before is now occupied growing traditional mediterranean products using the most modern techniques. Also plenty of people are turning around and reviving old industries (such as shoemaking), creating new, often cottage-sized companies that are selling abroad to the high-quality segment (the country didn't have a tradition of exporting and used to target the cheap segment, not the high-quality one). And of course, the highest number of sun hours per year and the best beaches in the whole of Europe mean that turism is still booming.

The parts of the economy that are suffering are the non-productive, financialisation-dependent parts of the services sector.

Frankly, my latest trip has filled me with hope for my country. Now all that my countrymen have to do is get rid of the cronyist politicians and blackmailing foreign financial institutions that are holding it back.

Thu, 07/04/2013 - 08:34 | 3720900 thethirdcoast
thethirdcoast's picture

I'm currently in the middle of a two-week vacation in Porto and I couldn't agree more. I picked this as a last minute RnR destination and I am terrifically impressed with how friendly and welcoming the people are. They really know how to do hospitality right.

I am also impressed with how cheap and high-quality the food is here. This applies to the markets and dining out. All the ingredients are terrifically fresh and the preparation and presentation has been uniformly excellent.

Hopefully the people here can get together to do the right thing and dump the deadweight scum that are dragging their economy down.


Thu, 07/04/2013 - 08:39 | 3720907 Atomizer
Atomizer's picture

It seems to me that the solution is quite simple: default


Ironically, that very statement is the key ingredient to put this entire charade out of business. The few controlling powers would go from riches to rags in nanoseconds. Thank you for the summary on the conditions of Portugal. We hope you can successfully purge the ball and chain that seems to constrain sovereign growth.  

Thu, 07/04/2013 - 08:13 | 3720869 GeezerGeek
GeezerGeek's picture

There is no excuse for such frightening graphology. They should hire the BLS to fudge the numbers in a more benign direction.

Thu, 07/04/2013 - 08:15 | 3720871 highcapacity
highcapacity's picture

European Fall and btw Fuck U Dragoldman

Thu, 07/04/2013 - 08:18 | 3720874 horot
horot's picture


Thu, 07/04/2013 - 08:19 | 3720876 Son of Loki
Son of Loki's picture

Moar "shared sacrifice" from the generous depositors.

Thu, 07/04/2013 - 08:21 | 3720880 Sudden Debt
Sudden Debt's picture




Thu, 07/04/2013 - 08:21 | 3720881 PaperBear
PaperBear's picture

Just seen the CNBC ticker report that Portugal bans short-selling of 3 bank stocks.

Meanwhile silver can be naked short sold into oblivion - thanks.

Thu, 07/04/2013 - 08:28 | 3720895 GMadScientist
GMadScientist's picture

Just saw the CNBC ticker announcing that noone will be buying Portugal's bank stocks any time soon.

Meanwhile, silver can still be purchased in physical form at reasonable prices.


Thu, 07/04/2013 - 08:45 | 3720920 put_peter
put_peter's picture

You see this is very simple: Everything that has some sort of value is allowed to be shorted. Naked shorted if it has more potential value. Now the central management is indirectly telling us what THEY think of the shape of the Portuguese bancs. Officially of course the crisis is over as we can see and hear several times a day from different medias.

Thu, 07/04/2013 - 10:01 | 3721047 Sudden Debt
Sudden Debt's picture

You don't understand!

Look, Banks can loan out printed wealth at interest and enslave people.

Silver on the other hand is just actually wealth. You can't print it.

And that's why banks are more important that real stuff of "reality".


Thu, 07/04/2013 - 08:24 | 3720889 GMadScientist
GMadScientist's picture

In order to be Portugal's economic minister, you have to be her foreign minister.

Thu, 07/04/2013 - 08:27 | 3720893 JustObserving
JustObserving's picture

Maybe Portugal is expecting billions from Obama for assisting in the hijacking of Evo Morales:

The hijacking of Evo Morales

The forcing down Tuesday night of President Evo Morales’s jet on suspicion that it was carrying Edward Snowden to asylum in Bolivia is part of a descent into imperialist lawlessness unprecedented since the 1930s.

France, Portugal, Italy and Spain all refused to allow the plane to cross their air space, rescinding approval of its flight plan after it had been airborne for three hours and forcing it to make an emergency landing, with its fuel running low, in Vienna, Austria.

In La Paz, hundreds of demonstrators gathered outside the French embassy, throwing stones, burning the French flag and shouting, “Hypocrite France!” As if to prove their point, France’s Socialist Party President François Hollande claimed Wednesday that it had all been a misunderstanding, and had he known Morales was aboard, the plane would have had no problem.

The lives of Morales and other senior Bolivian officials were placed in imminent danger as they returned from a summit of gas-exporting nations in Moscow, where the former National Security Agency (NSA) contractor has been trapped in an airport transit zone for 11 days, with no country yet willing to receive him. Afterward, the Bolivian president was essentially held hostage in Vienna until the next morning, when the European countries lifted the flight ban.

These methods amount to state terrorism and air piracy. While they were carried out by European governments, there is not a shred of doubt that their real author was the Obama administration in Washington, which is waging a relentless, extralegal manhunt for Snowden in retaliation for his exposure of the NSA’s secret and unconstitutional spying program against millions of people in the United States and all over the world.


France, Spain, Portugal and Italy are ethically bankrupt to add to their economic bankruptcy.


Thu, 07/04/2013 - 08:31 | 3720897 GMadScientist
GMadScientist's picture

"Oh, that Evo...I thought you meant that woman from the show with the insatiable hausfrau."

Thu, 07/04/2013 - 10:11 | 3721069 unununium
unununium's picture

Future whistleblowers be warned.  Your actions could endanger the convenience of some innocent, yet very important people.

Think of the difficulties all those who happen to share your name, or look like you, or have an on-line profile similar to yours, or happen to be leaving the same airport as you, will suffer. 

Is it really worth it?


Thu, 07/04/2013 - 10:44 | 3721127 Monedas
Monedas's picture

France, Spain and Portugal wouldn't let our planes fly over .... when we bombed Ghadaffy's tent compound and those Russian cargo planes ! They flew out of England .... and had to refuel in mid-air .... off Gibraltar .... wasn't it ?  Pukey allies ?

Thu, 07/04/2013 - 15:23 | 3721843 thisandthat
thisandthat's picture

They still flew over Portuguese airspace, despite the refusal...

Thu, 07/04/2013 - 13:03 | 3721508 malikai
malikai's picture

Very agreeable. However, I must note that they were ethically bankrupt before they were financially bankrupt.

In the case of nations, it seems always the case that financial bankruptcy is the end state of a corrupted government.

Thu, 07/04/2013 - 08:37 | 3720906 Quinvarius
Quinvarius's picture


Thu, 07/04/2013 - 08:41 | 3720914 Iocosus
Iocosus's picture

The US bank manipulators are off today so the EUR/USD does what it should be doing: nosediving.


Thu, 07/04/2013 - 08:43 | 3720918 holgerdanske
holgerdanske's picture

Be aware that someone might flag this post for "religonism".
Most, having no clue about "on the origin of species", would maybe call it racism, and the moderator could be just as clueless and agree.
But, let the cards tumble. I have certainly had enough, and would like to see some of the criminal banksters brought to book, just for once!

Thu, 07/04/2013 - 12:04 | 3721318 juggalo1
juggalo1's picture

It seems several European countries must default, or else there must be general Euro devaluation.  It is increasingly clear that the PIIGS will never be able to balance their financial situations.  Germany can whine and scream, but they enabled the situation.  The transfer payments from the poor southern countries to the rich northern countries must be cut, and then the northern countries can realize then lending to deadbeats is not a risk free game.  Why won't they attack the problem instead of continuing to beat these poor dead horses?

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