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The Fairy Tale Of Portugal's Successful Turnaround
Submitted by Daniel Stelter via The Globalist blog,
For all the attention given to Greece, is Portugal really that much better off?
Even a brief glance at the facts suffices. Portugal is no less bankrupt than Greece. The country’s government debt, at 124% of GDP, might be lower than in Greece. However, government debt is just one – even though important – part of the full debt picture.
On an aggregate level, Portugal’s overall debt level — at 381% of GDP when also including private households and non-financial corporations — is well above Greece’s total debt level (286% of GDP).
So while Greece’s problems mainly manifest themselves via government debt, Portugal suffers from too much debt in all three sectors of the economy.
The debt that keeps on growing
At the same time, debt continues to grow much faster than the Portuguese economy. Between 2008 and 2013, aggregate debt grew by 69 percentage points. In order to stop the debt growing faster than the country’s economy, the government sector alone would have to improve its fiscal position by 3.6% of GDP.
Given the overall status of the Portuguese economy and the debt problems of the private sector, that improvement is an impossible task. Trying to achieve it would push the economy into outright depression.
Given all these facts, it is all the more astonishing that the German Bundestag voted unanimously in favor of Portugal’s proposal to pay back loans from the IMF earlier.
Bundestag members did so with great pleasure. Why? Amidst the fraught negotiations in Brussels with the new Greek government about the extension of the Greek program, it was a welcome opportunity to claim that the European approach to the crisis with austerity and reform was indeed working.
For Portugal, it was a good deal, because it could replace relatively costly money from the IMF carrying interest around 4% with cheaper loans from the capital market. But Portugal’s refinancing itself in the markets is not really a sign of the success of the policy mix in Europe.
Given that the country’s creditors are mainly foreigners, Portugal cannot inflate the debt away. It is also in no position to grow out of its debt problem. Assuming a current account surplus of 0.9% (as achieved in 2013), it would take 128 years just to pay back all foreign debt.
Portugal’s sober realities
Debt aside, Portugal faces other quite extraordinary challenges: It has the lowest birth rate in the Eurozone, has to contend with an exodus of the young people to other countries, the lowest overall level of qualifications of its population in Europe, as well as low productivity levels.
With just nine patents per one million inhabitants, Portugal performs better than Greece (with four patents per million). However, it lags significantly behind countries such as Italy with 70 and Germany with 277. What about competing on price alone? That is a difficult proposition for a European country with high debt levels.
Thus, I arrive at two conclusions: First, Portugal will never be in a position to serve its debt. Second, having access to the capital market is only the result of ECB policies and not the result of successful macro or micro policies pursued inside Portugal. But what will this lead to?
A Greek-style solution?
Until now, the Greek finance minister Yanis Varoufakis is one of the few asking openly for direct funding of the governments by the ECB. His proposal that the ECB buy up government bonds and exchange these into interest-free perpetuals still seems to be too creative to be broadly acceptable.
The higher the debt levels of European nations in crisis grow — and this is simple mathematics — the more visible it will become that this debt is out of control. Then, the pressure on the ECB to “fix” the problem with its balance sheet will become overwhelming.
When speaking about Greece, the media often claim that, thanks to the Eurozone’s extension of the program, the “bankruptcy of the country was avoided.” This is of course rubbish.
What was postponed was not the bankruptcy itself, but only the official declaration of Greece’s bankruptcy. Once Greece runs out of money, it won’t be a temporary liquidity issue (as it is perceived in the media), but the open declaration of an already well-known fact.
It is important to realize that essentially the same holds true for Portugal.
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I love it when the big bad wolf eats Draghi for supper. Happy ending? Or just the begining of a bout of severe stomach pain?
That qualifies as food poisoning.......
The Portugese will make excellent debt slaves, just like the Greeks.
All that private debt will be pushed up to the government, eventually, via bank bail-outs. The government will then sell the country's soul to the Troika in perpetuity in exchange for a "program". Just like Greece. One might even say it's the new "template".
The Portuese aren't rocking the boat like Greece since they've accepted their slavery.
All Governments should be stopped from borrowing money and should start issuing their own money, debt-free.
If a nation can issue 3 billions in bonds, can also issue 3 billions in money.
And Portugal's 10-year Government Bonds yield 1.81% (in depreciating Euros!)
Makes perfect sense.
German 5 year bunds are negative in depreciating euros. Even better
In contrast to Greece has Draghi some space left to help Portugal after the 15.3. (QE European style)
another NWO prolific immigration sub-prime debt success story
YAY Zionism
Will Portugal help Spain and Italy to bail out Greece ?
Will they all hold hands together in their quorum ?
Apparently this guy hasn't heard the news: Europe is fixed!
Does this below mean that everything and everyone in Portugal is up to there spicy chourico in debt except financial corporations?
The problem with all the Western economies and China:
https://www.youtube.com/watch?v=QOJpF9aS1zo
Ridic:
http://www.washingtontimes.com/news/2015/mar/2/irs-defends-refunds-illeg...
Is this the same fairytale like Ireland's great turn around? Or the great turn around of Estonia?
So many turn arounds, so little economic growth.
FWIW tax revenues have been increasing steadily over the last two years in Ireland as has the number employed. That's what the statistics say anyway.
No bigger a fairy tale than the US turnaround.
Portuguese PM accused of tax evasion
The difference is that Portugal makes enough wine corks to mitigate the a** f*****g.
The real cork will soon be a thing of the past except for high end reds and whites. Screwcaps and composites are taking over.
a screwcap as a butt plug - could work as an improvisation....
The real cork will soon be a thing of the past except for high end reds and whites. Screwcaps and composites are taking over.
Once Portugal bails out Greece so that Greece can then bail out Portugal then the problem is solved, no?
At some point in the near future..the ECB just gives each country 50 billion a year to give to their voters....what can go wrong with that....and gold and silver willl hit new lows at the same time...I am sure of that
Another proud people, betrayed by their governing class, sold into debt slavery for, at least, 128 years.
Waiting for border fences to go up; East Germany wasn't oppressive, just a bit ahead of the curve. Serfdom is the new orange.
dup
http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_02/03/2015_547785
Varoufakis urges 'intelligent' debt restructuring
Greek Finance Minister Yanis Varoufakis called Monday for «intelligent" restructuring of Greece's debt, while acknowledging that a write-down would be unacceptable for the country’s creditors.
"A ‘haircut’ is a dirty word. Ive learned that," Varoufakis told the German business daily Handelsblatt.
"Just as we don’t want to hear the word ‘troika, our creditors don’t want to hear the word ‘haircut’. I understand that," the minister said, referring to visits by the trio of creditors that have overseen Athens’s finances through two bailouts.
"There are more intelligent solutions -- swaps, for example," Varoufakis said.
Under that mechanism, Greece could transform part of the loans it has received from the European financial support system (EFSF), or bailout fund, into bonds.
The interest and repayment rates Athens pays on these bonds could then be pegged to Greece's rate of economic growth, Varoufakis argued.
Last month, Greece's eurozone partners agreed to extend the bailout programme until the end of June to give both sides time to hammer out a new deal.
In return, the Greek government was required to draw up a list of proposed reforms.
"I don’t want Greece to pile up more debt. The new deal we want to agree on by the end June must be a growth pact, based on private-sector investment," Varoufakis said.
"If we can return to growth and restructure parts of our debt intelligently, without changing the nominal amount, then the debt problem can be resolved," he said. [AFP]
""A ‘haircut’ is a dirty word. Ive learned that,"
Yeah, waited until after the election to learn it.
Don't turn around, uh-oh.
Der Kommissar's in town, uh-oh.
You're in his eye,
And you'll know why.
The more you live,
The faster you will die.
Portugal has some factors going for it:
Oh and there's sunshine and the chicks are hot.
Don't forget the amazing food and wine! The Douro region produces some terrific reds that can be had for about 2 EUR per bottle!
Totally agree and IMO Portugal will always be able to attract the wealthy there even if they were to default. Same as Greece I suppose the med countries know no matter what happens they can fall back on CHEAP tourism if they abandon the Euro.
Portugal is broke not only economically, but more fundamentally from a cultural perspectice. I wrote a blog yesterday ellaborating on the role of religion and dictatorship and why these 2 factors will drive us out of the Euro sooner or later. Hope it adds value
https://contrarianstraighttalker.wordpress.com/2015/03/01/salazar-and-wh...
Their demographic problems were exacerbated by the immigration of large numbers of Creoles from their former colonies.
Loved your article and didn't realize you could be jailed for listening to radio that must have really sucked. Anyway it's history now thank goodness.
I happen to agree with you in that the Euro can't survive in its current form.
This announcement has been approved by the Portugese Ministry of Finance & Tourist Board.
Well just look how the Irish turnaround was successfully sold to the public.
Chambawamba knows about this and is tracking he will update here with the deeper news.
The real issue here, as the article says, is that the vast majority of external debt is private and not sovereign.
As long has the Portuguese Governement doesnt nationalize it, it will mainly be a crditors problem.
Being myself Portuguese, I dont personally nor politically approve the pending Government. However, one must admit they have managed to avoid too much natinalization of private debt. Only if they could keep their mouths shut about Greece.....