Portugal's financial worries

Atlantic trouble

The government insists it is neither Greece nor Ireland

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Readers' comments


J Luso

We have to agree that the current Portugal's government is a disgrace and possibly the lowest poit in Portugal's History. It did not make the absolutely necessary and required reforms or cuts that would have put Portugal in far more confortable position. The gov didn't act it reacted to external pressures. The prime minister Socrates is an absolute disgrace of a politician and is constantly linked to all sorts of corruption and influence games. This is a fact. However, we have to wonder as to why the credit rating agencies are always punishing Lisbon with rubbish credit ratings, because Portugal passed the European Central Bank stress tests with flying colours and did not have any sort of property bubble bust. Meanwhile other countries such as Britain, which have a montruous external debt and budget deficit which (far exceeding that of Portugal) and had proeprty bubble busts and near collapse of its banking system enjoy a luxourious top of the line triple AAA credit rating. Why?
IS it easier to climb out of recession on the back of others by speculating on their debts (smaller countries are easier targets)?


Finally I guess I read a fairly well-balanced article about Portugal's current situation. It needs to be said: Portugal's has NOTHING in common with that of GREECE (which was lying about its budget for years) or IRELAND (huge problems in the banking system).

Portugal has neither of these two. Ans thus the question that is asked right here in this article, why the markets are so jittery about portugal have several explanations in my opinion:

a) As my fellow countryman pointed out (I must say I disagree with him about this government's performance, given the circumstances) our debt situation is not so different from that of other nations - just look at the figures: UK's deficit:11.4%, France's deficit:7.5% etc. yet, we are the ones being targeted by the markets. AS I have pointed out before in one of my comments made in a previous article on Portugal, there is the market speculation. This speculation is fed by the English-speaking media, which injects high doses of speculative articles, most of what you read misquotes our ministers, or takes what they say out of proportion, our quotes out of context, or just plainly lie about the country's situation. Obviously this is stirring up the markets, as the depiction of Portual given by the media is awful (despite being incorrect). SO I think the ENglish-speaking media is partly to blame for the market's attack to Portugal

b) conflict of interests: the ratings agencies were quite steady in downgrading Portugal and Spain, yet keep the prim AAA ratings (as pointed out also by my fellow countryman) of countries like the US and the UK which are as highly indebted as we are. This is probably due to the fact that most people working in these rating's agencies are English-speaking and the corporations who finance these ratings agencies are also from English-speaking countries- in fact they have a history with that already in the US that I will not have to repeat here

c) deflection from bigger, more important countries,like the UK, or France. By pointing the finger to the smaller one, they avoid having their public finances talked about in the media whose attention turns towards a country who is literally too small to defend itself. As I said previously, the word of Angela Merkel, or a British newsreporter is worth 50,000 of our PM. I am fine with countries defending their own interests, as long as this is made in good fairness. This isn't happening here, there is no fair play in this.

d) UK's interest was in NOT having an Irish bailout!!! Obviously the UK will SUFFER from this Irish bailout. So I guess they "fought" for a Portuguese one to come first to see if Ireland could escape the fate. Goes on the same lines as what I said above, yet this time the media is just trying to attract people's and the investor's attention to Portugal (often exaggerating what truly is happening in Portugal and not really explaining to potential investors how big a difference there is between the situations of Portugal and Ireland)

e) currency wars: Germany wants a strong euro. Most of the economic policies of the eurozone are dictated by the german. (low deficits, export, strong currency). This clashes a bit with the traditional way the Portuguese are used to deal with their own economy. (before we had a fairly weak currency, for instance). We might in fact be the ones being used in this war.

f) plain ignorance about Portugal's economy, history, and culture. I mean it is DEMEANING to use the word PIIGS to describe us. Most investors probably do not know that Portugal has one of the largest gold reserves in the World, for instance. Or that in never went bankrupt before. Or that it has historical and cultural ties with many of the countries that are now becoming major world players like Brazil or China.

g) economy not being a "hard science". In the 90s ans early 2000's economists defended the idea of "self-regulating" markets and developed models to explain them. Well it has been proven now and again how economic models fail to explain or predict anything at all. If you don't believe me look at predictions made by some major economical organisation, for countries' GDP growth for this year, 5 years ago and see how far they missed the actual figures. There is no such thing as a "self-regulating" market. What drives the markets is basically greed (let's call things by their names) , people wanting to make money, sometimes the easiest way possible.

I guess these are amongst the main of the many reasons I can think of for explaining the reason why Portugal is on the market's hitlist. Others I can think of involve just plain greed or something like lack of self-esteem among the Portuguese. The Portuguese tend to be quite autistic when it comes to globalisation and haven't yet understood the real causes and consequences of this crisis - which is in many ways beyond our control.


and I guess in terms of macroeconomic indicators no Portugal is neither Greece nor Ireland (and is actually faring better than Spain and many others):

(taken from wikipedia)

public deficit (2010):
Ireland: 32%
Greece: 15.4%
Portugal: 7.3%

public debt(2010):
Ireland: 90%
Greece: 120%
Portugal: 77%

economic growth(2010):

Spanish pig

J Luso and pedrolx:

I completely agree to both of your comments. I think Portugal has the same problem as Spain in facing foreign powers ("the markets" or whatever their disguise is), and this has always been like that throughout history. The international press (English-speaking) attacks Portugal because Portugal just defends itself and they only see weakness in that. It is not enough to prove that the banking system is solid (same as in Spain), you have to attack them in some way, so that they have to move to a more innocent victim.

Of course, Portugal has problems of its own, but this disproportionate exaggeration of them can only mean four things:
- Historical consideration of Portugal as a lesser country.
- Deviation of the attention from other countries in bad shape (with not so honest economical strategies).
- Someone takes other economic advantages out of Portugal's international image.
- A combination of all of them.

Good luck, fellow PIGS!

Carlos Collaco

This is a situation resembling a death row.
The accused is not an individual but a collective body.
Each frightened country queued up to go to the gallows wishing it may earn last-minute mercy from the executioner.
Above all not wishing to be taken for someone else.Innocently paying extra for someone else's misdeeds.

Seriously, Portugal is neither Greece nor Ireland.
Greece is neither Portugal nor Ireland.
Ireland is neither Portugal nor Greece.Period.

There are enough differences between them - past, present and future - to warrant separate treatment from that unidentifiable entity named financial markets.
Unfortunately what they've shared in common - the need to go back to the markets selling debt, perceived sluggish economic prospects and the fact they are smaller countries - made them very vulnerable to poaching.

Portugal has defied the worst expectations by posting an expected plus 1% export-driven growth this year.
If financial markets/investors should allow it some breathing space 2011 might just be a little less bruising than what forecasts anticipate.
As long as overdue internal adjustments are carried out within Portuguese society by strong purposeful government.

J Luso

If this Euro situation is analyzed in fair way, the group so affectuously known as PIIGS should be broadened to include an extra G or extra pig: Great Britain, then it should read: PIIGGS because if we are talking levels of foreign debt, budget deficit and macro economic outlook then "booze" Britain should be the greatest PIG of them all (not just because Britain have been considered the most obese nation in Europe and 4th in the WOrld). For some reason the so called "markets" decided that Britain should enjoy a much supportive top of the line triple A rating , despite the fact that their banking system collapsed, had to be rescued and nationalized and it had a property bubble bust with house prices decreasing as much as 40%. This luxurious credit rating is excellent to climb out of the recession. Meanwhile other countries such as Spain and Portugal which as demonstrated in the European Central Bank stress tests have a very solid banking system, have seen their credit ratings been penalized repeatedly which is basically aggravating exponentially their economic situation by ridiculously increasing their interest rates. The EU Commission seriously has to do something about these very partial "markets".

This really makes me like football all the most, because when England plays other countries it is always 11 against 11 and they do always get beaten because the "markets" can't get in the way and countries, however overrated they might be are allowed to show what they are worth....


Was it Tolstoy who said that "happy families are all alike; every unhappy family is unhappy in its own way"?
The same could be said of countries. All strong creditor countries are alike, each overleveraged strung-out country is strung-out in its own way, be it Greece, Ireland or Portugal.
Portugal's good export perfomance is indeed encouraging, and essencial for a rebalancing of the economy in favour of tradeable goods. But the necessary deleveraging, in terms of total external debt, not just public debt, has not yet been tackled in most of these countries, which are still plagued by excessive debt of excessively short durations.

Besides exports, Portugal will also need to increase domestic savings sharply with positive real interest rates,and to boost productivity and competitiveness with wage cuts and improving qualifications.


The media does in fact control much of this crisis, not just in the UK but a bit all over the world. We have come upon an era where "miscommunication" seems to have the upper hand... all in the name of quick and easy money to be earned while the crisis still lasts. Shame on speculators. Shame on governments. Shame on Man who has become pre-historic once again.


The media is in fact responsible for a lot of misinformation, not only in the UK but a bit all around the world. The truth is that in times of crisis there is easy money to be made at others expense. Shame on governments. Shame on banking. Shame on speculators. Man has become sadly Pre-Historic once more.


Picking on PIGS:

Siding with Spain and Portugal, indeed, they are not Ireland or Greece. It is unfair to lump troubled Euro Zone economies in the same basket. Or is it?

The trouble comes from the investor community and their understandable jitters about these countries’s ability to repay their debt, regardless the reason. There are two dynamics we should all pay careful attention to largely left out of the economic media.

Incredible and steadfast practice of denial coupled with procrastination. Spain and Portugal were not only completely off the mark in dealing with the crisis, but they continue to live in a perpetual state of denial. Both governments are clinging on to power at the expense of the future of the country unlike Greece and Ireland (new elections coming).

The second dynamic is the ability for these countries to repay their accumulating debt, in particular return to economic growth.

So why pick on Spain and Portugal? Many countries like the USA, France and the UK have astronomic debt. The answer is culture and history.
The USA has tremendous debt, but it also has a tremendous ability to reinvent itself and emerge from crisis stronger than before. Ireland has had 15 years of unprecedented growth based on a low and flat corporate tax to attract value added industries like IT, pharmaceutical, call centers and more. True, a property bubble did emerge and compounded the problem, but the foundations were solid.

Not so in Spain, Portugal and Greece. More specifically, their economic woes are largely structural and historically have been so. Spain had severe structural problems before their construction boom which were never dealt with. Portugal has been in steady economic decline for the better part of the last decade. It had no bubble to pop. Fortunately for Portugal, its banks are relatively sound.

Neither country has ever credibly shown its willingness to enact hard but each day more necessary reforms to its macro-economic policies. Both countries have a massive and inefficient public sector chewing up large chucks of the annual budget, Portugal especially.

Both countries insist that they can meet their debt obligations by austerity alone. However, in effect, they are really saying:

“We might be able to meet our obligations by much procrastinated short-term austerity measures, but we will not be making any serious changes or adjustments for the middle and long term future”.

Markets and creditors know this fuelling speculation and driving up bond rates. In creditor language, it is saying, “Portugal and Spain might be a good return in the short run (but at a higher rate) but we don’t see anything to bet on in the medium and long term”.

Denial, procrastination and a history of NOT making long pending adjustments to its policies and economy are what haunt Spain and Portugal.

Sadly, unless the voters and citizens of these countries use their recent rights of a democracy (both emerged from a dictatorship in the mid 70’s) to participate in the debate and in particular participate in change, they will be saddled with debt, higher taxes and a continuation of stagnation and structural high unemployment.



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