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Next Up: Portugal

by John Rubino on February 14, 2012 · 25 comments

It looks like Greece will get its debt restructuring, which presumably delays its collapse by a few months. So now the spotlight shifts to the other functionally bankrupt eurozone countries which have no choice but to demand the same deal.

Portugal, by general consensus, is next in line. It hasn’t blatantly lied about its problems the way Greece has. And it hasn’t accumulated quite as much debt as Greece, though at 105% of GDP its government is still deep in the danger zone.

But for the past decade it has run truly massive trade deficits. In order to pay down its debt it will need to generate trade surpluses going forward, but without the ability to devalue its currency to make exports cheaper, that’s not likely.

So as with Greece, austerity leads to depression:

Bailed-out Portugal’s recession seen worsening
(AP) LISBON, Portugal — Portugal’s recession will deepen this year under the weight of austerity measures meant to reduce public debt, the bailed-out country’s central bank predicted Tuesday.

Portugal is trying to free itself from a huge debt burden that forced it to ask for a euro78 billion ($100 billion) financial rescue package last year to avoid bankruptcy.

But the Portuguese economy, one of the frailest among the 17 countries that use the euro as its currency, is buckling under the austerity cuts and fueling investor fears about the bloc’s chances of recovery from its two-year-old sovereign debt crisis.

The central bank said in a report it expects the economy to contract 3.1 percent this year. Last October, it forecast a 2.2 percent contraction in 2012.

As in bailed-out Greece, the government faces a dilemma as it tries to cut spending while at the same time fostering the growth it needs to settle its debts.

The jobless rate has climbed to a record 13.2 percent, and trade unions have staged strikes and protests against tax hikes and pay and welfare cuts.

Finance Minister Vitor Gaspar told lawmakers Tuesday he planned no new austerity measures this year. He said any funding shortfall would be made up through the sale of state property and gambling concessions.

Portugal went into a double-dip recession last year, contracting 1.6 percent, the central bank said. The economy will be “virtually stagnant” in 2013, it said.

The debt crisis has caused Portuguese living standards to drop, with the central bank estimating that disposable income would decline 11 percent between 2011 and 2013 — the duration of the bailout agreement.

Depression, in turn, leads to chaos:

Lisbon Protests: More Than 100,000 Rally Against Austerity In Portugal
LISBON, Feb 11 (Reuters) – More than 100,000 people packed Lisbon’s vast Palace Square on Saturday in the largest rally against austerity and economic hardships since the country resorted to an EU/IMF bailout last May, and organizers vowed to step up protests and labour action.

The mass rally occurred just four days before Portugal’s international lenders were due to start the quarterly evaluation of the bailout implementation on Wednesday in the finance ministry building which overlooks the square by the river Tagus. They come amid concerns Portugal may need more bailout funds, if not a debt restructuring like Greece.

“We take this opportunity here to make our own evaluation on behalf of those who suffer daily,” Armenio Carlos, head of the country’s largest union, CGTP, told supporters as the crowd chanted: “IMF doesn’t call the shots here!”

“We have to step up the struggle,” he said. Carlos promised the next wave of rallies across Portugal as soon as on Feb. 29.

“The country needs to remove the rope from around its neck,” he said, saying that Portugal should try to renegotiate its debt rather than impose more austerity, an argument he has made consistently.

The peaceful rally under the banners of the 750,000-strong CGTP, which last month refused to sign a pact with the government on labour market reform, showed that social strife is running strong and likely to grow even though other unions agreed to the reforms demanded by the bailout terms.

The dynamic of austerity leading to depression leading to regime change will continue until Germany just gives up and bails out the whole eurozone periphery.

  • Doug

    But CAN Germany bail out the whole European periphery, and would they really want to? Aren’t the costs of bailing out the PIIGS higher than if they either kicking out the dead weight or themselves left the Euro?

  • http://roycobden.blogspot.com Roy

    Look to the FED to backstop the Bundesbank… after all, the idiots who’ve bought & sold trillions in CDS’s must be protected at ANY cost.

  • http://www.3blenders.com Thomas

    Doug, it is not nice to call the PIIGS “dead weight”…as if the Germans themselves are better. These cultural differences, one thinking of themselves as “better”, is the fall of Europe. It has always been that way. The Nazis thought of them to be better than the others. And Hitler will come again, (he is already manifested in you), in a different form. This time it is in the form of the IMF and of the UN. It makes me angry to hear people speak without any compassion towards the weak. And I live in the USA…we are the strong, always having helped the whole world, even before I immigrated to the USA (from Austria). Think first, before you talk! Have compassion.

    • Doug


      To me, anyone who pulls their own weight and are asked to pay for someone else’s bills is “better” than the one needing the handout. I didn’t mean it as a cultural difference, just a difference between being financially disciplined and undisciplined.

    • eugene

      What America do you live in? Certainly not the one tens of millions of us do. As far as helping the rest of the world, you need to get your head out of dark places and take a long, hard look at those we’ve helped. The endless devastation as we used our economic and military power for the sole purpose of advancing our own financial gain. Compassion towards the weak? Tour our mental institutions, our reservations, the devastated cities of the Rust Belt, our ghettos and the list is long. You might be from Austria but you are, truly, an American at heart. Welcome!!

      • Steven in Dallas

        True, but if you think that American hegemony is bad, want to try your hand living under Chinese hegemony? or Russian? or Islamic? We think we are vile because we work hard to eliminate these practices – but at least we condemn them. Other cultures embrace all the sins you recited, and more.

        So to sum it up – sure, we aren’t pure as the driven snow but man oh man it could be so much worse.

  • http://www.baconsrebellion.com Jim Bacon

    Hey, Thomas, Welcome to America! How many years do you think we’ve got before we confront reality like Greece and Portugal? Five years? Ten? Fifteen? Will anyone have compassion for *us*?

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  • thiscreepingmalaise

    The US debt to GDP is at 102.20 percent today (see usdebtclock.org).
    If portugal is so bad at 105% where does that leave us? We can only print so much currency before other nations start to abandon the dollar as world reserve currency. Look up reports on Japan and China trading without the dollar and India and Iran cutting out the dollar and using gold for oil trades. Our days are numbered if we don’t do something and soon!

  • http://www.myronswinningjuniors.com Myron Martin

    Compassion is wonderful, the problem is that the bankers have none, they just want their pound of flesh no matter what happens to the individual. The simple truth is that every citizen of the world is a “DEBT SLAVE” just at different levels.

    The top 5% BENEFIT from our debt financing system while the so called “middle class” aspiring to reach the top 5% through letting their “money work for them” through the supposed “magic of compounding” are for the most part deluded that they can get there, while the bottom 20% or so, (or is it now 40% when that many rely on food stamps) are kept from rioting or crime by socialized handouts, neither class realizing that the fractional reserve banking system is mathematically impossible long term.

    WHY YOU ASK; simple, since our currency supply is totally BORROWED INTO EXISTENCE as DEBT, and the interest is never created, only the principal of each loan, it necessarily follows that the only way an economy can thrive with enough currency in circulation to accommodate an expanding economy is if enough fiat currency is perpetually borrowed into existence at exponentially growing levels to cover BOTH the uncreated interest that accumulates into an unpayable DEBT PYRAMID, and replacement of old debt being paid back.

    This is a recipe for perpetual and growing debt that is constantly expanding at accelerating rates that ultimately results in inflation and lowered purchasing power that increase the cost of living faster than real income. Eventually what is “compounding” is not income, only DEBT!

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  • http://NextUpPortugal Jerome Eisen

    You must remember these countrys can’t print money they must borrow,they forgot they are in the EU,only the central bank can print it
    Here in the USA we can print all we want and then it’s all over Kaput gone,one of these days,because the dollar is worth nothing, thats why you need GOLD,SILVER!

  • PeteCA

    I doubt very seriously that the Germans will dash to the rescue of the PIIGS when they see the ultimate calamity coming. It is worth remembering that the Germans have been through hyperinflation before. They remember severe distress … it was at their doorstep. If other people cannot be responsible with their own country’s finances – it’s cetainly not Germany’s task to bail them out. I think the Germans will hunker down and try to ride out the storm .. as one by one the peripheral Euro economies go down the abyss.

    The EC banking system is shot. The concept and mission of the ECB itself is dead. “The king is dead .. long live the king!”.

    Greece is over and done with – they have hit the wall financially and politically. Others are doomed to follow.

    Those that can save themselves … will act to save themselves.


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  • W G Thompson

    The dullest nation on earth (Belgium)
    dreamed up the Euro, and surely the
    Germans are smart enough to see that
    it was just another attempt to re-create
    the Roman Empire, and thus can be
    terminated without regrets (in Germany).
    What happens to the rest of Europe as
    statism breathes its last is fairly
    obvious: banks fail, economies shrink,
    and living standards fall. If our
    Fed tries to micromanage Europe’s
    situation, we’ll follow them. We might
    anyway, since our own position is
    precarious, and only Alan Simpson and
    Ron Paul seem to realize that our debts
    can never be paid, and are accordingly
    a mortal wound. So it’s “more debt
    or instant bankruptcy,” as someone
    recently observed, and that being the
    case,how about the 3rd choice, which is
    to ask the state governors to call a
    constitutional convention and reshape
    us into 4 loosely allied nations, thus
    repudiating Washington and all the
    carnage it’s wrought? It beats civil
    disorder by a mile. WGT

  • Tuga

    What a piece of crap and lies.

    First of all, the aricle is so bad that I believe the purpose is to make money with spreading lies. What are worst? Bankers or articles like this one?

    The portuguese current account deficit wil be 6,8% in 2011 and not almost 10%, as suggested in the second image. The article is lying blantaly.

    My source? The Portugal Central Bank: http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/BoletimEconomico/Publications/bol_inverno11_e.pdf

    Table 1.1, page 7

    The author is a lier or dumb. Or both, no matter what we think.

    In 2012 the portuguese current account deficit it could be 1,6% of Portugals GBP and will be positive in 2013.

    Why teh author is spreading lies?

    Portuguese exports rose 15,2% in value in 2012. In volume, more than 7,3%. One of the best results in the Eurozone.

    My source: http://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_destaques&DESTAQUESdest_boui=128300955&DESTAQUESmodo=2

    Why the author is spreading lies?

    What are the aim to spread lies against portuguese people? How much corrupt are the american press to spread lies?

    What portuguese export most?

    Car and parts, machines, chemical products like drugs, plastics, gas and diesel, capital goods, processed food, copper and tungsten.

    Why the american press is spreading lies against portuguese people?

    The portuguese GDP is falling because too much debt and they are deleveraging, the internal demand is falling but their exports rose, more than german or irish exports.

    Why americans are spreading lies against the portuguese people? Why?

    Are you a short seller? Good luck with yours positions.

    • John Rubino


      You are right about the 2011 current account deficit. I was using old data and Portugal’s trade flows have improved since then — though they’re still way out of balance. The chart has been updated accordingly. And the line about Portugal “not exporting much” was badly crafted. Of course they export lots of things, just not enough to offset what they import. Meanwhile, the Portuguese Central Bank report you reference is easily as negative as anything you’ll find in the U.S. media. Here are first its three paragraphs. Note how many times they say “unprecedented”:

      The projections published in this article point to a contraction of the Portuguese economy in 2011 and 2012, followed by a virtual stagnation in 2013. This contraction of economic activity, which is unprecedented in the Portuguese economy, reflects a significant decrease in domestic demand, both public and private, within a framework of adjustment of basic macroeconomic imbalances. The sharp contraction in domestic demand is accompanied by significant growth in exports, which however is not enough to offset the impact of the adjustment of the demand levels by the resident agents within a framework of private sector deleveraging and fiscal consolidation.

      In the context of the sovereign debt crisis in the euro area, in 2011 the Portuguese economy intensified the unavoidable adjustment process of the macroeconomic imbalances accumulated over the past years. These imbalances originated persistently high external borrowing requirements and therefore an unsustainable path for the international investment position. Amid severe tensions in international financial markets, these imbalances are a source of vulnerability for the Portuguese economy, which contributed to the loss of access of the public sector – and, consequently, of the banking sector – to market financing in regular conditions. As a result, the Portuguese government requested financial assistance from the International Monetary Fund and the European Union. This request led to the formalization of an Economic and Financial Assistance Programme (EFAP), in which the Portuguese government pledged to adopt adjustment measures to address macroeconomic imbalances and structural reforms. These measures aim to ensure the necessary conditions to increase potential growth of the Portuguese economy and foster a sustainable growth pattern, in the context of the new international financial markets operating framework, though exerting an inevitable contractionary effect over the short term. Thus the projections presented in this article for the 2011-2013 period point to an unprecedented contraction in economic activity and in domestic demand, accompanied by a substantial reduction in the external imbalances of the Portuguese economy.

      Given the level of external indebtedness, the decline in domestic demand needed to ensure the external solvency conditions of the Portuguese economy is of an unprecedented magnitude. Its impact on economic activity will depend largely on the external environment of the Portuguese economy. One must mention that underlying the current projection is a slowdown in global economic growth in 2012, especially in the euro area, amid escalating international financial tensions, stemming, to a large extent, from the recent intensification of the sovereign debt crisis in the euro area and the need for budgetary consolidation in several advanced economies.

  • http://www.aliquantum.com.au victor

    The sooner the first domino falls the better. As we all know the domino effect gets faster once the first domino has fallen. I see great opportunities in a depression…….. innovation, invention, hard work and satisfaction in a job well done. The coming attitude correction is the medicine for all our ills.

  • Bruce C.

    First of all, I don’t think that even Greece will ever actually receive its next tranche of bailout money because I don’t think the new austerity measures will actually be voted in to law or implemented. I doubt the strong arm tactics used to make the Parliament give in last Sunday will work to force political suicide in the next few weeks. Besides, those laws could be difficult to enforce, especially without the political will to do so. And if they are not passed, or not implemented, then no “checke”. Ditto for Portugal and all the rest.

    People en masse seem to be slow learners and fear runs deep, but just as an increasing number of Americans are realizing that TARP and the Fed bailouts were/are a lose-lose private-to-public debt swindle disguised as a fear-based threat, Europeans are beginning to see that the eurozone bailouts are the same thing.

    Similarly, just as Americans have accepted that austerity would be worse than deficits and debt monetization, hoping that a doomsday never really arrives, so far the PIIGS people have accepted the warnings that a wholesale default would be worse than austerity-for-bailouts, no matter how untenable, hoping that they will be temporary. But now the tide is turning. Now the austerity is real, its feasibility no longer speculative, and so is the outcome: permanently lower standards of living compared to the wealthier EU countries – sans any national independence and liberty from now on – and all of the “publicly” owned sovereign bond holders made whole OR the country is bled dry and left for dead. Now the consequences of default seem a lot clearer and less onerous, if not desirable: a relatively cheaper national currency, increased exports and tourism, along with true national independence and liberty. After all, the austerity is already going on. Why succumb to unending debt slavery, or worse, when it it will be too late or more difficult to change?

  • http://www.MedicAngel.com Daniel J. Lavigne

    Must say that I agree with the majority. Its best if all nations facing such situations merely default on all loans . . . and start doing whatever they must to prepare for their inability to purchase oil. (Due the impending . . . MUCH higher prices for that necessary resource.)

    Ergo: Its time to face reality and prepare for the reality of having to augment whatever food you might be able to purchase with whatever you are able to grow.

    Continuing the effort to help the poor in Cambodia, Laos, Thailand and Vietnam.

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  • Doug

    Germany is in terrible shape. Their banks are loaded with bad sovereign debt and Germany keeps doubling down on all their bad bets. They are dependent on exports to countries that can no longer afford their products (Southern Europe and the US). They also have a very bad demographic situation with low birth rates and a large retiring generation. They are also very dependent on foreign sources of energy. Their government has some pretty high debt levels too. On top of all that, they have the Euro as their currency.

    We have a global credit bubble that cannot be paid off, just as a ponzi scheme cannot pay off all the investors. No country is strong, just like in the 1930s everyone suffered. Our only choice is to suffer by deflation or inflation and every year they kick the can, the worse it will be.

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