The day after the announcement confirming Ireland’s decision to fall back on aid from the European Union and the International Monetary Fund, the Portuguese gazed on the markets as into a crystal ball that will reveal the nation’s pending fate. Contrary to expectations, however, the tell-tale signs, like interest rates on public debt and credit default swap indices, were at sixes and sevens. Portugal, according to yesterday’s figures, is not immediately doomed to an outside rescue, but after the Irish bailout, we can’t say that the pressure has let up and that the country doesn’t need anyone’s help.
In such a touch-and-go state, every utterance, every signal from political and economic decisionmakers will affect the shape of things to come. Furthermore, Portugal simply cannot afford to have to give yet another round of explanations about its budget overruns [despite two austerity plans, the Portuguese budget was implemented as originally voted].
Keeping pressure on Portugal makes no sense, but...
In a word, Portugal can’t hope to bring the market pressure down till it has a credible fiscal policy to show for itself. If our current levels of deficit and public debt have moved socialist ex-minister António Vitorino to say that “by any rational assessment, keeping pressure on Portugal makes no sense”, nevertheless the state’s ability to implement a rigorous policy will require more prudence and circumspection in future.
Even if the country succeeds in escaping unscathed from the current storm on the markets, doubts about its ability to pay its creditors are not going to just evaporate. And if in the short term the government continues to prove incapable of keeping spending under control, the pressure is bound to come right back, and with it the prospect of punishment at the hands of the EU and IMF.
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Irish salvation will cost you €140 each
"140 euros to save the Irish banks," headlines Jornal de Notícias. This is the sum that every Portuguese man, woman and child will have to stump up to rescue Ireland, writes the Lisbon daily, basing its math on the mooted EU/IMF loan of €90 billion euros, out of which Portugal’s share should be €1.5 billion. However, Jornal notes that the contribution will have little impact on the country’s burgeoning deficit, as it will covered by national bond issues. “The accounts are not easy to do right now,” the daily adds. The IMF will pour in up 36.2% of the bailout (out of a €250 billion kitty) while the European Stability Mechanism (with up to €60 billion from the EU budget) will account for the rest. The Lisbon business daily notes that the Portuguese loan to Greece hit €2 billion, with each citizen coughing up €194.
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