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After Greece, Portugal

by John Rubino on July 5, 2011 · 13 comments

Now that Greece has been kicked down the road, it’s time for the other PIIGS countries to start lining up for similar deals. Portugal looks to be next, after its most recent deficit report:

Portugal’s 1Q Budget Deficit Higher Than Expected

LISBON (Dow Jones)–Portugal’s budget deficit for the first quarter of the year came in higher than suggested by the previous government, forcing the new one to step up efforts to control the country’s accounts.

Portugal’s statistics agency said the deficit for the first quarter was at 8.7% of gross domestic product. Although it was an improvement from 9.2% of GDP in the fourth quarter, it is still much higher than the 5.9% Portugal must reach by the end of the year under a EUR78 billion bailout program.

“This needs to be corrected fast,” a government official familiar with the matter said.

Two government officials told Dow Jones Newswires Tuesday that the new administration will accelerate some measures to address the budget gap, including on tax increases. Prime Minister Pedro Passos Coelho is expected to announce the measures in parliament Thursday.

Under terms of the bailout agreed with the European Union, the International Monetary Fund and the European Central Bank last month, Portugal must cut its budget deficit to 3% of GDP by 2013.

The goal is challenging, particularly because the country faces a recession over the next two years.

Nonetheless, Passos Coelho, who took over the post of prime minister last week, has been quick to show how willing his government is to fulfill all the requirements imposed by the troika under deadline.

Portugal’s bailout success will be key to the euro zone, which is currently struggling to shake off problems in bailed-out Greece.

Like Portugal, Greece was told to cuts its budget deficit sharply in exchange for financial aid. So far it hasn’t been able to meet the targets.

Portugal, a country of nearly 11 million, is Western Europe’s poorest, with growth that has trailed its neighbors over the past decade, something economists blame on an uncompetitive and rigid labor market. The unemployment rate has risen above 12% this year.


Some thoughts:

  • Lately, whenever a new government takes power in a European country (or a US state for that matter) they discover that their predecessors have been cooking the books. This shouldn’t come as a surprise, since an incumbent would have to be suicidally honest to run for reelection on the true numbers.
  • It is a bit ironic though. Didn’t the previous government get tossed out because voters didn’t like its austerity plan?
  • “Under terms of the bailout agreed with the European Union, the International Monetary Fund and the European Central Bank last month, Portugal must cut its budget deficit to 3% of GDP by 2013.” Hmm. Slicing 6% of GDP out of government spending in two years — while the ECB is raising short term interest rates, the global economy is barely growing, and domestic unemployment is already 12% — doesn’t seem politically possible. So some sort of extend-and-pretend deal is therefore coming. The question is whether it happens preemptively or in response to street riots and soaring yields on Portuguese bonds.
  • The question then becomes whether the current German government has the political capital left to sell its voters on another big increase in their collective liabilities. Greece could be explained away as a one-time problem of a singularly badly-run country. But when several more failed states line up for the same deal, a pattern will form in the minds of voters.
  • Meanwhile, the drawn-out euro crisis is giving reporters time to educate themselves, leading to a general realization that these bailouts are all about the banks, and that PIIGS country citizens are being turned into serfs so bankers and their shareholders can keep living like aristocrats. The next stage in the education process will be the discovery of parallels between today’s global banks and the French Revolution
  • nevket240

    The next stage in the education process will be the discovery of parallels between today’s Europe and the French Revolution )))

    One can only live in hope..

  • boatman

    the bankers who say “let them eat cake” are going to the financial guillotine sooner or later.

    watching merkel try to ‘walk the line’ is as funny as the greek socialist party calling for austerity.

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  • Jason Emery

    JR-“..these bailouts are all about the banks, and that PIIGS country citizens are being turned into surfs so bankers and their shareholders can keep living like aristocrats.”

    Was that a deliberate misspelling of the word ‘serfs’, as ‘surfs’, to indicate that the bankers are riding them like surf boards, to the promised sand, lol? If so, good play on words!!

    Seriously, though, how does Germany extricate themselves from the shark attack (to continue the metaphor) that is the Euro? If they pull out of the Euro, does the Euro/dollar exchange rate go from 1.45 to .45 overnight?

    With soaring petrol prices, might cities like Paris, Lisbon, and Madrid start to resemble Chinese cities of a decade ago, completely clogged with bicycles?

    • John Rubino

      Jason, good catch. It was just a spelling mistake, but I think I like your take better!


  • Luis
  • SloandEZ

    Central bankers, private bankers, they are all the same, socializing their ludicrous bet losses onto the taxpayers, who they have meanwhile rocked to sleep in the cradle of the nanny state. Time for Baby Hewie to wake up and abolish the central bank and break up and liquidate the private banks choking on their sovereign debts and obscene derivative contracts. Erase the bad debt and bogus bankers! Viva la real money?

  • Bruce C.

    I like JR’s last thoughts the most.

    Americans, at least, are beginning to see that all the pandemonium is about the European banks – the primary owners of PIIGS bonds – trying to offload their losses by “socializing” them (i.e., having European taxpayers pitch in) and/or exchanging them for capital assets (e.g., ‘Wanna default? Okay, we’ll take all your toll bridges for these crappy bonds’).

    Even Alan Greenspan managed to clear things up a bit in his interview with Maria Bartiromo last Sunday. He said that default by Greece is inevitable IF the EU doesn’t agree to “fiscal consolidation”. (Still a little cryptic, I know – but still – I’m giving Alan an “A” for effort on his syntax: Not one double negative in over 3 minutes.) Having every EU member country share in the losses proportionally is what he was trying to say, and even Maria got that because she then followed up with, “So a Greek default is inevitable then?”

    Ditto for Portugal. Europeans have to decide how much they want to pay for a bad deal. (The over-under is already A LOT.)

    Looking ahead (no pun intended) I’d actually rather see the PIIGS, et al follow Iceland’s lead rather than France’s, but not by much.

  • Frank

    One if by guillotine, two if by tar and feathering.

  • Brad Thrasher

    From Shakespeare’s Henry the Sixth, Part 2, Act 4 Scene 2:

    All: God save your majesty

    Cade: I thank you, good people—there shall be no money; all shall eat
    and drink on my score, and I will apparel them all in one livery, that they may agree like brothers, and worship me their lord.

    Dick: The first thing we do is kill all the lawyers

    Cade: Nay, that I mean to do

    Today’s bankers are no different than Shakespeare’s “traitorous Jack Cade, who envisions a quasi-communistic social revolution, with himself installed as autocrat. His demagoguery is simply a calculated appeal to simple folks’ longing to be left alone. Yet one may recognize Cade’s moral failings and still sympathize with Dick.” http://bit.ly/Jmhel

    Sound familiar?

  • http://www.blindfoldedmonkey.net Blindfolded Monkey

    The weakness of the US dollar has been getting most of the attention in recent years but it may be the Euro that ends up collapsing in the end if some of the weaker countries don’t get their act together. The Euro countries have been making a mockery of the rules they were supposed to have adhered to as part of the common currency agreement.

  • Brad Thrasher

    JR has predicted that we can expect various and sundry budget gimmicks and tricks coming out of Washington during this debt management debate. One such gimmick, many will find simple and popular is the One Cent Solution. The sponsors claim:

    “If the government cuts one cent out of every dollar of its total spending each year for six years, we can:

    Balance the budget by 2019.
    Reduce federal spending by $7.5 trillion over 10 years.
    Reduce the debt $3.4 trillion over 10 years.”

    The problem with gimmicks like this is that when the agencies know that Ways & Means is going to cut they raise their request proportionately.

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