The Next Global Problem: Portugal

By Peter Boone and Simon Johnson

The bailout of Greece, while still not fully consummated, has brought an eerie calm in European financial markets.  It is, for sure, a massive bailout by historical standards.  With the planned addition of IMF money, the Greeks will receive 18% of their GDP in one year at preferential interest rates.  This equals 4,000 euros per person, and will be spent in roughly 11 months. 

Despite this eye-popping sum, the bailout does nothing to resolve the many problems that persist.  Indeed, it probably makes the euro zone a much more dangerous place for the next few years. 

Next on the radar will be Portugal.  This nation has largely missed the spotlight, if only because Greece spiralled downwards.  But both are economically on the verge of bankruptcy, and they each look far more risky than Argentina did back in 2001 when it succumbed to default.

The main problem that Portugal faces, like Greece, Ireland and Spain, is that it is stuck with a highly overvalued exchange rate when it is in need of massive fiscal adjustment.  Portugal spent too much over the last several years, building its debt up to 78% of GDP at end 2009 (compared to Greece’s 114% of GDP and Argentina’s 62% of GDP at default).  The debt has been largely financed by foreigners, and as with Greece, the country has not paid interest outright, but instead refinances its interest payments each year by issuing new debt.  By 2012 Portugal’s debt-GDP ratio should reach 108% of GDP if they meet their planned budget deficit targets.  At some point financial markets will simply refuse to finance this Ponzi game.

To resolve its problems, Portugal needs major fiscal tightening.  For example, just to keep its debt stock constant and pay annual interest on debt at an optimistic 5% interest rate, the country would need to run a 5.4% of GDP primary surplus by 2012.  With a 5.2% GDP planned primary deficit this year, they need roughly 10% of GDP in fiscal tightening.  It is nearly impossible to do this in a fixed exchange rate regime – i.e., the eurozone – without massive unemployment.  The government can only expect several years of high unemployment and tough politics, even if they are to extract themselves from this mess. 

Neither the Greek nor Portuguese political leaders are prepared to make the needed cuts.  The Greeks have announced minor budget changes, and are now holding out for their 45bn euro package while implicitly threatening a messy default on the rest of Europe if they do not get what they want – and when they want it.  The Portuguese are not even discussing serious cuts.  In their 2010 budget they plan a budget deficit of 8.3% of GDP, roughly equal to the 2009 budget deficit (9.4%).  They are waiting and hoping that they may grow out of this mess – but such growth could only come from an amazing global economic boom.

While these nations delay, the EU with its bailout programs – assisted by Mr. Trichet’s European Central Bank – provides financing.  The governments issue bonds, European commercial banks buy them and then deposit these at the ECB as collateral for freshly printed money.  The ECB has become the silent facilitator of profligate spending in the euro zone. 

Last week the ECB had a chance to dismantle this doom machine when the board of governors announced new rules for determining what debts could be used as collateral at the ECB.  Some observers anticipated the ECB might plan to tighten the rules gradually, so preventing the Greek government from issuing too many new bonds that could be financed at the ECB.  But the ECB did not do that.  In fact, the ECB’s board of Governors did the opposite:  they made it even easier for Greece, Portugal, and any other nation to borrow in 2011 and beyond.  Indeed, under the new lax rules you only need to convince one rating agency (and we all know how easy that is) that your debt is not junk in order to get financing from the ECB. Today, despite the clear dangers and massive debts, all three rating agencies are surely scared to take the politically charged step of declaring Greek debt is junk.  They are similarly afraid to touch Portugal.

So what next for Portugal?  Pity the serious Portuguese politician who argues that fiscal probity calls for early belt tightening.  The EU, the ECB, and the Greeks have all proven that the euro zone nations have no threshold for pain, and EU money will be there for anyone who wants it.  The Portuguese politicians can do nothing but wait for the situation to get worse, and then demand their bailout package too.  No doubt Greece will be back next year for more.  And, the nations that “foolishly” already started their austerity, such as Ireland and Italy, must surely be wondering whether they too should take the less austere path. 

There seems to be no logic in the system, but perhaps there is a logical outcome.  Europe will eventually grow tired of bailing out its weaker countries.  The Germans will probably pull that plug first.  The longer we wait to see fiscal probity established, at the ECB and the EU, and within each nation, the more debt will be built up, and the more dangerous the situation will get.  When the plug is finally pulled, at least one nation will end up in a painful default; unfortunately, the way we are heading, the problems could be even more widespread.

This post previously appeared on the NYT.com’s Economix and is used here with permission.  If you would like to reproduce the entire post, please contact the New York Times.

120 responses to “The Next Global Problem: Portugal

  1. Does Mr. Johnson or Mr. Boone have any good solutions?

  2. Looks like Greece was “to big to fail.”

  3. Greece = Bear Stearns
    Portugal = Lehman Brothers
    Spain = AIG

  4. What does ‘pull the plug’ mean? Germany will pull out of the Euro and reintroduce the Deutschmark?

  5. Patrick VB (Brussels)

    Once it becomes clear that paying down debt is impossible for Greece given structural deficits, debt/GDP ratios, future GDP growth and sovereign borrowing rates, it will also become evident that the main issue for foreign governments now is how best to bail out Greece’s creditors, i.e. mainly German, French and Swiss banks. It will then also become clear that foreign governments are going to bail out these banks, indirectly and slowly by providing the necessary credit for Greece to slowly extricate itself from its problems on the back of foreign taxpayers, or more quickly and dramatically if Greece does not get foreign help, defaults and restructures its debt. In this latter case, the question is no longer the Greek economy, but Greece’s foreign creditor banks who will suffer yet more blows to their balance sheets. These banks will then of course be bailed out by their governments, who have demonstrated that they won’t let any major bank fail.

  6. The real problem is a common currency. A currency should reflect the economy that backs it, but there is not a common European economy; there are the economies of Germany, Greece, Spain, etc. W/O the Euro, the Drachma could simply float to its real value, and the inflation would accomplish the necessary tightening. This is not possible under a single currency.

  7. Vladimir, you have correctly assessed the probable outcome, and the underlying forces driving it. Portugal will not get assistance because of the forseen political backlash of “bailout fatigue.” The resulting panic will be so scary that anyone even remotely shaky (Spain, Italy, who else?) will get a bailout (even if they don’t want it!).

    The resulting outrage that the CEOs (oops, I mean Prime Ministers and Presidents) all get to keep their jobs will fill the Blogosphere but have little result in the end.

    And the Doom Loop continues….

  8. This is typical IMF twaddle. How is the ECB accepting Greek (or Portugese) bonds as collateral for bank inflation inferior to the Fed accepting worthless mortgage drek from US banks?

    You are campaigning for return to a world that has completely disappeared. Forget about sound financial priciples, which never meant anything except ringing blood out of the workers anyway. European workers are smarter than that! In today’s world money is entirely worthless and the only issue is whether this or that individual can get his hands on enough to pay tomorrow’s bills. You guys want to give trillions to rentiers and force workers to retrench? That only works in the good old USA.

  9. “Pity the serious Portuguese politician who argues that fiscal probity calls for early belt tightening. ”
    Are you serious? What about the actual human beings who are expected to put up with the growing unemployment, falling wages, decimated social programs?
    I am tired of economists with their bag of technical tricks and gimmicks, who pretend that there are no actual people involved.

  10. Patrice Ayme

    In the case of Greece, the main exposure was, is, FRENCH banks. German exposure is half that. So why to always talk about “Germany” in dramatic tones?

    Finance, and currencies OUGHT to be slaves to economics, not conversely. German, French workers, and their colleagues, profit both from a lower euro and greedy Greeks, Portuguese and what not. So, no problem… OK, little problems, as one gets as one drives along: turn left, turn right, brake, accelerate, pay attention, etc.

    PA

  11. simon
    has now completely gone over to the dark sise
    or is it back to the dark side

    the role of anti big bank rabble rouser
    and imf rough houser clash over the piigs
    and the imf boy in him wins by a walk over

    i’m always impressed by big time econ merlins
    they have their quota of “rational” scientific class neutral policy advice
    but then there’s always the MNC party line every where else

    it’s the price of spot light time

    concious or learned by stimulus /response

    if not you end up in the shadows like
    dead left totems
    like lerner minsky and vickrey

    one sees stiglitz and realizes
    his unique combination of analytic power and creative insight
    is over matched by his utterly soporific communication skills
    and sheep like bleetings

    too bad about simon
    he has the legs for a real run

  12. Well,I’m portuguese and to be honest our poleticians are as good as any other, bad…

    The main problem is that the actual economic system is gone, gone , gone, but everyone continues to act as if it’s not.

    We’re talking about money, only that, not producing wealth.

    The Global economy it’s a joke, a very bad joke, everyone knows, and everyone is looking to the other side..

    I like very much the USA, but, what it’s sad is that the major problems in the World begin there.

    If you look , fellow americans, your companies, lands, etc., your debt, your gigantic debt is mostely owned by the chinese, who in turn flood the world with their products, wich by the way are supported by all of us, amen.

    What should we do? Go back to the Far-West, no rules, no regulations, let the market find it’s way, well it found it, look where we are now, globally.

    The most exciting thing in our days is things like the launch of the IPad, who if you think for a little is useless, but it’s selling like popcorn, can you imagine someone feeding on them?

    The world is full of toys while the simple people the only thing they want is to survive another day.

    The reality is that no one, no economists, presidents, prime-ministers, poleticians, scientits, we the people, knows what to do , to solve this palnetary mess we’re in.

    One last word, I’m optimistic

  13. “Finance, and currencies OUGHT to be slaves to economics, not conversely. German, French workers, and their colleagues, profit both from a lower euro and greedy Greeks, Portuguese and what not”

    i agree completely

    though the driving analogy escapes me
    since it seems suitable
    for the fettered trot
    MNC global market hegemony demands
    not the full throttle mcaro run
    your comment
    and more generally
    job class oriented Rxs imply

  14. please outline your doom loop

    and its motivations

  15. do u assume no one in the zone
    gained by the euro zone admiting the piigs ???

    nonsense right ???

    there fore:

    the price for euro zone winners
    is to pay some of the loses
    of euro zone losers

    is this really hard to follow ???

    of course
    its national winners and losers
    ie it devolves on the national tax payer backed credit cards of winner states
    to come up with the pay back
    despite the fact euro zone

    even though its not nations that are winners
    but corporations
    ie
    corporate types and their rentier ramorah

    unfortunately a more accurate transfer system between winners and losers
    is politically impossible eh ??

  16. so why did the euro zone emerge ??

    look to the winners and assume they hold effective power

    could the rig explode
    let’s hope so for the sake of europe’s toiling masses

  17. Peter and Simon have have have hit it on the head. The threat of collapse among the PIIGS (just savin on the typing don’t mean to be derogatory) is at an all time high. Imagine for a moment if one of these countries defults on its debt. What whould you think will happen ?
    My suggestion from the start has been that Germany should pull out of the monetary union, re-introduce the mark and let the euro depreciate…..

  18. Osvaldo Coelho

    Brazil can take Portugal as our colony. Adds $243 Billion US GDP and 10,624,688 Population.

  19. Is this satire?

    Reality is not as caring about human beings suffering as you may be.

  20. exactly

    but we need to say all that politely
    or we sound shrill

  21. reality has personhood ??

    like the east wind ???
    or is this some figure of speech
    that allows you to keep the villains off stage

    who is it that doesn’t care as much
    as ellis appears to care
    about our fellow humans suffering
    even if mildly from job drought and wage stag

  22. “The reality is that no one, no economists, presidents, prime-ministers, politicians, scientists, we the people, knows what to do , to solve this planetary mess we’re in.”

    no lots of folks prolly understand the problems and have sufficient grasp of solutions to accelerate
    the global production system’s recovery

    they just face a power structure
    that prefers for the next few years
    oecd stagnation

  23. german corporations are
    huge beneficiaries
    of the euro zone

    why destroy your frankenstein
    because he tramples now and again
    on a few low rent member nations

  24. brazil’s hour will come
    we yankees will see to that

    you are not the china of latin america
    u are a convenient mirage

  25. Solving the problems is actually trivial in itself–there are plenty of resources, land, tools, knowledge, labor, to keep producing at a high level. But the institutional barriers have become insurmountable. The obvious answer is to change institutions. This should be the easiest thing to do, since institutions (unlike nature) are completely human creations. But it turns out to be the hardest thing to do, because institutions are also a set of power relationships, and people do not easily give up power.

  26. Aleksandar R.

    What are ECB’s options? To declare that the Greek and in the near future Portugees debt is junk and cannot be used as a collateral? That would be kamikaze type of policy. Banks would refuse to buy bonds, interest rate will soar and the deficit will only get larger given the higher interest rate. You might argue that that will motivate politicians to take some draconian cuts in public spending which may be true but it will surely be more difficult because the time-span in which the cuts would be made in a higher-interest surrounding are shorter and offer less flexibility.

    That is why I support ECB’s policy.

    The main practical question is how can core eurozone countries that gain from the euro more than others influence the periphery to spend less. One would expect that the bailout for Greece would come with a sum of demands but it didn’t. Does anyone perhaps know why? It makes no sens.

  27. ” the Greeks will receive 18% of their GDP in one year at preferential interest rates.” Can we, map the world based on preferential rates, real time, please?

  28. The major problem is in the economic system. Rich people are getting richer, poor getting poorer and what we assist now will become worst in the future. The only solution I see is reinvent capitalism, make people consume but not by credit, by debit. That’s a big step towards a relatively fair economy. We can’t forget that people who will change this are those who have the power, so we really have to fight our way through. But don’t put this as a doom end, look at this as a cycle that will end with better solutions than the ones existed before the financial crisis.

  29. john haskell

    Peter, you’ll recall that in the summer of ’98 the IMF promised Russia $18 billion, sent $6, then ditched the rest of the program. Look for this to happen again with this latest “bailout,” either due to Irish Parliament, German court decision, or any of a number of other banana peels.

  30. George Lordos

    There are no good solutions, only unthinkable solutions and bad solutions.

    One bad solution would be to split up the Eurozone into two or three currency zones, based on wage competitiveness. The ECB can still manage all these currencies, and they can float against each other and against the rest of the world.

  31. United Kingdom = Goldman Sachs!!!

  32. Canucklehead

    Pedro, The world has always rewarded those who adopt and live the “Far-West” school of thought. Everyone is looking for value.

    Collectively, if the “system” cannot sustain everyone’s perception of value, it will break. Vested interests will spend political capital looking to maintain the status quo; trying to draw blood from a stone. Best of luck with that.

    Smart individuals will study up and start investing in the future (whatever and wherever that may be). Time invested in learning about finance and investments will be time and effort well spent. You need to make your own decisions. You need to be able to analyze the “lay of the land” and identify your opportunities. Life is for the living.

  33. Enough with the dantesque remarks! I find it appaling that once again *an outsider* begins to extrapolate about some other coutry financial situation. I know, we all know, what happens to the stock markets the days after. I can only wonder what the interest is. Because, really, who cares at this stage? Shareholders, definitely. As far as it should actually matter Portugal’s Stability and Growth Pact has been approved by the EU. Now let them get on with their job and we talk later.

  34. É POR CAUSA DE PESSOAS COMO VOCES DO FMI E AFINS, QUE O MUNDO ESTÁ COMO ESTÁ…. PORQUE NÃO TE CALAS E DEIXAS O NOSSO PAÍS EM PAZ… VIVA PORTUGAL

    THE MAIN REASON WHY THE WORLD IS IN CRISIS AS IT IS, IT’S BECAUSE OF PEOPLE LIKE YOU , THAT WORK FOR IMF OR WORLD BANKS, AND TAKE THE WORLD DOWN….
    SHAME ON YOU AND LEAVE OUR COUNTRY IN PEACE… INTEREST WITH YOURS… WHY DON’T YOU JUST SHUT UP…

  35. exactly

  36. peace and unity

    I have to comment on the Martins post…

    hahahahahahahahaha

    it is not very intellectual but I had to share it.

  37. That’s OK I don’t think anyone would expect much from a thick yank anyway.

  38. Dire perspectives… Portugal, surely enough, is in bad shape, in terms of debt and budget deficits. However, I wonder if there are not quite a few others, that may be in even worse shape.

    I suggest that everybody should read what LEAP 2020(search them on the web) have been writing over the last two years about the current economic crisis.

    Portugal, Spain, Baltic states (last year’s big threat…) are just smoke screens, to hide bigger problems.

    Here is what LAEP 2020 have to say about current sovereign risk:

    “Classified in descending order from the most to the least dangerous, the eight countries with a sovereign risk greater than that of Greece are:
    1. United States
    2. United Kingdom
    3. Ireland
    4. The Netherlands
    5. Japan
    6. Spain
    7. France
    8. Portugal”

    And within this group, Portugal is the only country they consider having an “improving trend”. US, UK, The Netherlands, Japan and France, are all considered “worsening trend”.

  39. I think that all the remarks made here are valid. But let´s think about Spain! If Spain falls, all the European economy will fall right after! Spain is the only country of the PIGS group that has a real status in Europe and in the world economy. It´s one of the biggest economy in Europe (not like Portugal, Greece or Ireland) and it´s of the EU interest to bailout them.
    As Portuguese, I can tell you that the analysis made by Mr. Johnson is correct. We live in an unproductive economy, with high levels of corruption, high social differences between classes and a lack of leadership by our politicians. All the European helps handed all over the years were spent unwisely. The introduction of the Euro killed us. Prices rose 100% and 200% and wages with a growth of 20%! Remember that we have the smallest minimum wage of the Eurozone, less of 500 €! It´s a very difficult situation! Surely, Germany, France and Luxembourg will not be interested in landing a hand to us! The EU policies are, since 2001, oriented for the “new” countries back east and the ultimate goal, Russia!

  40. I was reading this table on countries debt (%GDP)

    http://www.economicshelp.org/blog/economics/list-of-national-debt-by-country/

    and wondering, is Portugal really what we should be worried about??

  41. Where do you think the money that Greece borrowed went?

    It was used to finance the surpluses of Germany and France.

    Actually, that was the whole trick of the EU. How to get other countries to borrow in order to finance production in those industrial countries at low inflation rates.

    SO now Germans, French and the others accomplishes have to pay for their economic sins. There is no free lunch. They wanted high standard of living at low inflation, they now have to pay the price.

  42. Blackeyebart

    The idea that a state like Greece or Portugal might benefit having its own currency which can be “adjusted” to achieve some sort of easy fix to that Nations economic problems can be fairly tested. The UK is in just that position.
    What I don’t see on the blogosphere is any sign that people feel that a GBP currency adjustment is likely to bring about any significant change to the UK economic position in the foreseeable future.
    Like many popular economic theories there is no clear evidence that the projected remedy would work. Dissapointment is probable.
    For my part I recommend that Greece and Portugal cling passionately to the Euro and seek more fundermantal changes to boost their economies. This will not be easy because it will require politicians to reject the ideologies that have created the problems in the first place.

  43. I agree with Vladimir’s analogy BUT unfortunatelly i’m not sure wether it is just an economic problem or a political problem.Take a look at Greece’s expenditure on military equipment.Where does Greece buy this equipment.Germany,France,USA.Look at Greece’s expenditure on cars.How many German cars does it buy?Look at the Greek trains.Made by Siemens.Look at Greek’s home electrical equipment.Made most in Germany.
    So why should we pay Germany from military to home equipment and not get anything back?We are the major importers in EU.I don’t think my country will default.I don’t think Portugal will default.And I don’t think the problem is only economic but rather political.

  44. Mr Simon Johnson, why don’t you go F U C K yourself? ;)

  45. Portugal is a example not only for US but for the world. We are one of the oldest nation´s …do you Know the wise thought ” learn with the Oldes´t” Visit Portugal You are Welcome maybe you can learn that are superior values than economic values…relax take it easy…try to wrotte horoscopes you look like you have talent to predict the future…Economy is really a silly science

  46. Ahahah, dear Martins… I think your rant comes from the general feeling (the authors might agree with you when they say ‘spot-light’) that the world-wide finance and banking system, being built on speculation, likes to create escape-goats and that as you pull-down one economy you’re making investors believe in your own competitiveness and pulling it up… That might be true to some extent, but it’s also true that no country survives on its own as the world works today. Especially not a small country such as ours. So I’m not sure that “leaving us alone” would be of any help. It would sure remove us from the equation.

    No matter the weight of speculation in these affairs, you have to look the real assets we have now.

    To invest in roads, infra-structures and especially Education (our biggest deficit when we joined the EEC or EU), we gradually lost productive capabilities. Our Primary Sector is now utter pish: most land is untended (our inheritance laws don’t help, since they tend to divide property in equal parts instead of making compensations – our well-paid smart rulers never thought of this one…) and our fishery is in even worse shape. We are now basically a country of indebted consumers where the Third Sector – the services – takes most of our productive labour force. That’s not very productive at all. We don’t have 50 million people to work in the fields or the industry like the US or Brazil does. On the other hand, we don’t have a spectacular landscape like Switzerland, or a big historical country like Italy that allows them to have hordes of tourists in well-to-do cities and villages and invest in high-tech products and Art. I mean, of a work-force of about 6 million people (correct me if I’m wrong) half of them are working in offices – and that’s probably half of New York City.

    What can we do, in general? Specialize. In Agriculture. Tourism. Forests. And Science. We have good scientists although they all move abroad with State money (funny…). But it’s all there. All it takes is to create incentives to make people go back to the country-side – stop making cities so big (we don’t need big cities) and diversify how people are distributed on the land. Unless you do this, and while you keep casting your vote on idiots that think that having a super fast train between Lisbon and Madrid is essential for the economy – this is the sort of stuff that keeps in-debting us ad aeternum, we’re not going anywhere. There’s too much State around here telling you what you can do and what you can’t do – funnily they don’t seem to mind about the landscape that much (which is the primary resource for tourism). Make it more liberal, let us have less government. If this were to happen we would be fine in 5 years.

  47. Looking at isolated facts, but connecting them to other isolated facts and strains of thought (like conspiracy theorists do) makes you want to move to Equatorial Guinea, doesn’t it?

    But I agree, where’s the de facto in economical theory?

  48. Being Portuguese, I have no idea of what sort of an example you’re trying pull right now. Seems like talking from an high-horse and not keeping to the point might be one of them.

  49. I recommend golf courses.

  50. That’s not very good for water supplies, but you can fill the request form and our services will get back to you asap ;)

  51. You’re probably right. The mountains up-north have none and there’s plenty of water.

  52. There’s lots of opportunities here. Reading from above, I get the impression that making the most of our country-side is still an asset to explore. We’re not out of the loop yet.

    This doomsday scenario is quite centric on banking devices and doesn’t relate to any real country’s potential.

    btw, the Portuguese are prepared to austerity. That’s our middle name.

    But we just can’t take it from this arrogant government.

  53. The real problem is that, given the common currency, the Eurozone needed to float debt as one entity, not as separate sovereign states.

    I assume the Eurozone countries wanted the advantages of the former while avoiding the restrictions of the latter. And now they’ve between a rock and a hard place, as it were.

  54. Oh LEAP 2020, sure. The one who anticipated a “Euro/USD exchange rate of 1.75 by the end of the year 2008 and the inevitable default of the United States government on its treasury obligations by the summer of 2009.”
    (Wikipedia article)

    I do not mind Biancheri, I even voted Newropeans at the last election, but the report does not look very reliable. Besides, the authors are unnamed, which does not help.

    So back to the real problem, Portugal….

  55. Shut up…

  56. Anybody who makes predictions, is bound to fail on some of those… But even if somebody fails about a prediction on something happening until a certain date, that doesn´t mean that they are not right about the underlying trend.

    At least, LEAP 2020 have the courage to make specific predictions, they support them with quotes from several other sources, and recognize which ones they got right, and which ones they got wrong. Who else accepts that accountability? And mostly, they have been right, in the last two years.

    As for the USD, the Americans are financing their deficits issuing money (basically, only the FED buys T-Bonds nowadays), so we may expect a strong devaluation of USD in 2010/2011. The real economic problem is going to be, indeed, the US (and also UK).

    Portugal accounts for only 1.5% of Eurozone GDP… less than Greece.

  57. That’s why you are Ex-Chief Economist of the IMF…

  58. Of course.

    If Portugal got out of the EUR and back to the PTE, it would only add to the debt problem.

    The interest rates of the PTE would rocket skyhigh (relative to the interest rate at which we financed just this week – 4,5% for 10Y Bonds), increasing the risk of a default.

    However, we do need better politicians / policy deciders. But I suspect everybody has that problem. At least, we don´t have a Berlusconi in the seat of power.

  59. Good analysis… thumbs up!

  60. Three countries look in the mirror, and what do they see/think?

    USA thinks it is the World.
    UK thinks it is the USA.
    Iceland thinks it is the UK (or rather, thought).

    Unfortunately, I believe this is more than just a joke…

  61. What kind of bizarre nonsense is that? Your hostility is ill-paced.

    The IMF only comes to countries where the government invites them.

    And no government wants to invite the IMF/World Bank etc.. The only time a country does so is when it is brushing with default.

    Once the IMF/WB are invited, the host government does not have to take their advice. Just do not take their money.

    So all a country has to do is not incur debts which it cannot pay and the IMF will not come.

    Hint.

  62. One thing if for the IMF to come up with these conclusions, another is to have Simon and Peter extrapolating. There are certain things that just aren’t any of their business (at this point in time). They would probably be sued for defamation if this happened in the states.

  63. you haven’t identified the winners here

    a way to start ???

    figure out who benfits from high piig prices
    and from high over all zone wages
    the combo
    ends up looking like corporate zonal imports
    and cross border extra zonal point of production movers
    etc etc

    you look you draw up the tally sheet of gainers

  64. Had the PIIGs not adopted the euro, they would probably have imported less from euro area countries due to less favourable terms of trade. However, I suspect (I haven’t researched this though) that the major bilateral current account surpluses of euro area countries are with non-euro or even non-EU countries. That said, the EU and euro area institutions are indeed incomplete, further integration is necessary (imo, but then I’m a European federalist). So, transer mechanisms would be useful within the euro area. But then again, the main issue at the source of it all was bad governance in Greece and insufficient surveillance mechanisms. Now, each euro area country will have to pay up to save its own banks from the Greek fallout.

  65. Dirs Sirs, I wish to notice you that you must study better the portuguese economical status and Portugals prospectus.

    In my opinion your article is tha same tactic against the €uro, by anglo-saxon world, because that european currency is a treat to the american dollar and british pound.

    In your article you use some figures that tou didnt gave where did you get. How can show you the real figures in Portuguese Stability and Growth Pact:

    And you can acess to all document here:

    http://www.portugal.gov.pt/pt/GC18/Documentos/MFAP/PEC2010_2013.pdf

    Your article is flawed and without real figures. In my personal opinion, your article is only to scare investors and atack the €urozone and the €uro.

    I wish you luck next time. And I wish that you give the same opinions about Uk and USA. maybe their figures are worst than portuguese but youre trying do delud yourself.

    Kind regards.

  66. I would like to leave an (I think) interesting fact based upon a Martin Page text, “The first global village”:

    D. John III, unable to collect such taxes, began selling government bonds in the financial market in Antwerp, the interest being paid with the issuance of new bonds. “I have met plenty of reasons to despair ‘, wrote him at the time, the royal treasurer. The credit rating of Portugal fell in such a way that the bankers in Antwerp, demanded a rate of 25 percent per year. When D. John died in 1557, the Portuguese Treasury bonds had become what, in modern financial markets, is known for distressed paper, or changed hands, when he arranged a buyer for its entirety, by five per cent of face value.

    So… What’s new?

  67. Nuno Fraga Coelho

    If you were not english and against Euro i would not understood your ridiculous article. But you are english and you are against EURO. And you should be ashame to be english and to avoid to analise you own finacial sistem.

    Yo needed the Amrican’s help to survive. Portugal is such a better country that yours.

  68. What? Colony?

    Have we got gold, slaves or rare spyces?

  69. antonio correia

    Thank you Peter and Simon.
    Your article was PERFECT.
    I am Portuguese, and since 1982 that i was thinking exactly the same.
    YOUR PRAGMATIC ARTICLE JUST SAY THE TRUE, THE TRUE.
    Thank you very much.

  70. Portugal has been trying to run its budget deficit to 50% of GDP, because once at that level the english speaking media stops worrying about it and you can roll over your debt without trouble. But so far this goal hasn’t been achieved.

    This state has also tried insistently to default on it’s debt with multiple Treasury auctions, just to be met with appalling demand for twice or thrice the issuance targets.

    I just don’t understand how Portugal can succeed at these goals, I see myself emigrating to a more stable state like the UK or California within the year.

  71. Yes the Germans did profit big time from the deal. How do you think a country of 80 mln people has managed to keep its place among the world’s largest exporters with China and the US? It’s that captive (and subsidized) market within the Eurozone.

    Actually the story is reminiscent of the relationship between the US and China. Although in the case of the US – unlike Greece and Portugal – it does have a great deal to the export to the rest of the world. It’s just that it’s a matter of pride (and policy) that the East Asians import as little as possible. Massive import substitution (there’s an old term). I know whereof I speak: lived in Japan for 6 years and speak and read Japanese.

    Another instance (comparing Germany’s relationship with its southern Eurozone neighbors and the US vs. China and/or Japan) where things may not repeat but they sure do rhyme (Twain).

  72. The only problem with the comparison is the the UK and California do have the means to earn their way back to solvency. In addition theirs are more in the way of self-inflicted wounds of a largely financial nature.

    Bad comparison.

  73. what a stupid statement is this. You’d better answer on facts, maybe questioning whether Portugal deficit is really riskier than British, but not an identitarian answer, just as “be ashame to be english” and so on.
    You should be ashame for your PERSONAL (and not portugish) stupidity

  74. no, Germany and EU should let indebted states to fail, without pumping euros into the system, that will turn into inflation in some years.
    much better a cold shower today for some than a long winter tomorrow for all.

  75. The main problem is political: how much is it wise to give a bailout without a protocol to prosecute mistakers?
    We may bailout Greece and Portugal, just to save their people, but if those who made mistakes are not going to pay, why should things ever change?
    That’s the EU dilemma? Eu should be able to punish, before paying

  76. It’s a sterile statement, let me tell you why:
    I live in Italy. In 80′s they made laws that allowed 40-50 years old people to retire from job, being paid by state at 80% their last wage until their death, so to let youngers work and get lower the unemployment. The state national debt by consequence increased in a few years from 40% to 100% GDP. That’s because You, as a State, cannot make anybody work and pay taxes for 15 years and then mantain him for next 30 years till death.
    For an idea of taking care of people, but without understandings basics of economy, Italy lived in stagnation for most of 90s and these years.
    I agree that people are involved not only economics, but first or later we will be responsible for choosing easy demagogy instead of understandig reality.

  77. you’re good at being optimistic, Pedro.
    It could be enough for many of us to assume for next 10 years that we lost a war, and we have and to begin to build again.
    After WW2 Germany and Italy in 10 years had recovered almost all the power they got before the war.

  78. Please, i don’t feel to blame IMF and world banks for this crisis. I’m Italian and I’m a not a banker, and maybe it is just because of my home, of my car, of my 2 pcs and 3 handphones…but I don’t feel I have to blame IMF for my debts…

  79. thank you, that is at least a good answer

  80. hmmm, it seems nobody is guilty so far for having run deficits out of control and debt up to 100% Gdp before doing something.
    Let’s make at least half and half for responsabilities, please

  81. Canucklehead

    Today, if you go to iMarketNews.com you will find many articles related to the ECB position on Greece and Portugal. Please note that the ECB “Chief Economist” is carrying the water and poo-pooing political comments made by “Finance Ministers”.

    That does not look good as people normally do not put much weight into comments made by chief economists when they poo-poo their country’s political leaders on political matters.

    I don’t think the ECB’s Stark is quite up to the task as saviour of the Euro. I take it as a sign of desperation. Clearly the Euro is in weak hands.

  82. Nobody obliged Greeks to buy trains from Siemens and Guns from Germany and France. Couldn’t Greeks try to build themselves, as they do with ships?
    The idea “I consume, I’m important” does resemble very much the USA position vs China. It doesn’t seem to work much.
    If it would, the Republic of Venice would have survived until today with only its Carnivals and somptuos city life…

  83. That is making head work fine. thank you

  84. i think it was just an estimate for 2009: US for example figures up to 39%, but figures from http://www.usdebtclock.org/ say something different: 89.41% !!

  85. are You sure Uk has the means? It doesn’t seem from Asset\Debt Ratio. Brits have to be quite careful

  86. it´s fun the democracy each one can have a different opinion and criticize the own country the politics the politian´s …wharever..and it´s great…and it´s amazing the development of this country Portugal in 36 years, we are a case study what i see positive is that we look alway´s to improve we can say bad things about our nation and we can think that other´s reality are wonderfull that remember´s of young people of Cuba in beach with amazing weather eating seafood and with a lot of beautifull woman´s but dreaming in working in canada or Us in a factory or Mcdonald´s…people are strange …

  87. it´s your opinion , i think we are a modern country did you ever take the subway in NY or in Boston, its very bad , people of NY or Boston deserve much better,

  88. Miguel Pedrosa

    Theory or realistic ?

    Your appreciation of the monetarism and of the ratings agencies is the cause of many treasure defaults.
    Portugal has problems related to the consequences of a socialist revolution from 1974 which sacrified the next generations.
    Instead of reversing this trend of public spent the vice of reelection made in the last two decades of the past century more public debt.
    The contention first in this century and the austerity now are the prelude of a overcoming disgrace . A former Treasure Minister defined his forehead PM as the ” father of the monster ” latter the same man shall be the ” father of the bankruptcy ”
    Stringing the weakening economy with more taxes is rushing the worst there no more monetarism is needed.
    WHEN A GENERATION SPENDS MORE THAN IT EARNS THE BILL WILL BE PAID BY THE FOLLOWING GENERATIONS.
    All the explanations beyond this are circumstantial to our case.

  89. You are wright PJM

    Portugal is not perfect but is lovely, I always have the feeling each more i travel and visit other countries more I love Portugal…I think i am not the only one it´s common feeling in Portuguese people around the world, what a wonderfull country…maybe Peter and Simon when visit us can see that is a good investment

  90. Peter Bryson

    This article reveals a complete ignorance of the facts. It has been written over speculation and it is completely disconnected from reality.

    Ireland is, after Greece, the country that represents an higher risk of bankruptcy, not Portugal. Besides this, Portugal has been the only country until now to take serious measures to reduce its deficit and its unemployment rate – which is now on the 10,2% – much lesser than Spain, for instance, with almost 20% of unemployment rate.
    There is an interest in saying this crisis is mainly located in Southern Europe, in countries such as Portugal, Spain, Greece and Italy…

  91. jacopo,
    Aren’t you missing a “small” detail?
    A small US buyout (aka help) called Marshall Plan?

  92. Portuguese, let’s start packing our bags… the last one to get out shut the door… well in a second thought, don’t even care about shuting it, our politicians didn’t left anything to be stolen…

  93. Luís Bernardo

    “But both are economically on the verge of bankruptcy, and they each look far more risky than Argentina did back in 2001 when it succumbed to default.”

    Isn’t it funny when economists eschew their basic international relations, history and geography? No. It is no longer funny. These arguments are fearmongering disguised as purely rational statements.

    Western Europe does not function as the Mercosur. Its financial subsystems are not the same. Asserting that a Latin American economy – funny as well, given that the IMF was largely disproven in its policies AND expertise in that geopolitical context – in 2001 is less risky than two EU-EMU economies in 2010 is absurd. There is no empirical basis for such a comparison, unless you actually believe that crosstabling GDP, debt-to-GDP, savings rate and “risk” (in that happy-go-lucky, aggregate and diffuse neoclassical sort-of-way) is the only technique worth using.

    There are additional funny statements, those beautiful bits of wisdom that one takes out of these manifestos and puts on t-shirts.

    Such as this one: “Indeed, under the new lax rules you only need to convince one rating agency (and we all know how easy that is) that your debt is not junk in order to get financing from the ECB. Today, despite the clear dangers and massive debts, all three rating agencies are surely scared to take the politically charged step of declaring Greek debt is junk. They are similarly afraid to touch Portugal.”

    Perhaps we should discuss the downgrading and the signals sent by rating agencies to sovereign debt markets – as the recent downgrading exacted on Greece, which has now a lower rating than several countries with much lower political stability, higher skill deficits and less stable financial regulatory systems. Perhaps not. Perhaps you should stop discussing political economy en passant and start focusing on politcal economy as it should be dealt with – seriously.

    “And, the nations that “foolishly” already started their austerity, such as Ireland and Italy, must surely be wondering whether they too should take the less austere path.”

    No sirs, you are wrong. The Portuguese SGP is tremendously austere, much more so than in Italy, where regional assymetries are a guarantee of increasing pressure towards national governance, which will prevent the effecting of any viable SGP. Again, your number won’t point to this, nor your so-called models or your Austrian-Keynesian synthesis.

    “The Portuguese are not even discussing serious cuts.”

    It certainly is a problem that the SGP was written originally in Portuguese – as you may know, that primitive language is the national vernacular in Portugal. If you had read the SGP, instead of reading your daily WSJ, you would have noticed major tax hikes, major public sector cuts and major privatization plans. This IS austere. It is thus clear that your preference would be wage cuts, further tax hikes, further public sector cuts and whatever else could aid your gluttony. You will certainly drive your point home, score your goals and stay happily at home, while thousands of families face increasing hardship.

    “In their 2010 budget they plan a budget deficit of 8.3% of GDP, roughly equal to the 2009 budget deficit (9.4%). They are waiting and hoping that they may grow out of this mess – but such growth could only come from an amazing global economic boom.”

    I find it amazing how incredibly imprecise statements are advanced matter-of-factly without checking for coherence. NO. 9,4 is not roughly the same as 8,3. Self-righteousness should be met by precision, not these absurdities.

    Finally, I would like to stress that your ideas are not only buffoonish but dangerous. They will endanger the lives of millions of people who do save, who are responsible, who are neither corrupt nor improductive. These kinds of manifestos should be shelved as moral philosophy mislabeled as macroeconomics. You are clearly making a policy statement and trying to establish a self-fulfilling prophecy. There are no clear signals indicating that Portugal is as signifcant to the EU-EMU as you stress. There is no data revealing Portugal as an especially fragile economy in a context of structural turmoil at European level. As far as we know, Spain is a much more worrisome case for all Europeans. But Spain should still face a few hurdles before becoming easy prey to investors angst and market-based challenges, right?

    Texts such as this one are why economics and economists should face a trial of credibility by the public. Why do we accord them such prophetical weight? Why do we allow them to frame discussions from above? Why do we let them play on collective fears, picking on perceived weaknesses without visible intentions? Why are they always thought to be people with history, without ideologies, without creeds and self-interested projects? Do we really want them to be our guides? These are mere social scientists, dealing with uncertainty and probability. That they chose to present models and forecasts as matters of sciences is also our fault – because we do not question them. We should. They shouldn’t be allowed to fearmonger. They should be required to clearly present their starting points, how they see the world, what they assume, what are their moral and political philosophies.

    In short, this manifesto is disgusting and it should be questioned to its core. It is nothing more than an anonymous policy paper by any financeering think-tank.

    And no, I’m not a communist. I’m simply tired of epistemic arrogance and disciplinary imperialism. These people shouldn’t be allowed as much credit as they are right now.

  94. Speaking politely???

    What is shrill, is that I cant read a single blog post on any subject anywhere without “the good ole USA” showing up as a whipping boy somehow. And yet as an African I keep my Euro-colonial demons locked in the safe, because they bias my views in trying to understand what’s going on in the world, and particularly Europe.

    But this endless shadow boxing by Europeans, has to be constantly filtered for bias, so i can get to understand the mostly intelligent and informed views you bring to many discussions. It’s just tedious, and makes the forays into whiney victimhood above even harder to stomach

  95. the statistics are the statistics, and reality will play itself out.. shooting messengers achieves nothing.. By the way have you read the rest of his blog and seen what he has written about the U.S. there is nothing flattering there.

    Is the debt to GDP ratio what is stated here, if so is the service costs that high a percentage of GDP. What is the size of the deficit etc.

    Why don’t you simply counter argue what has been presented??

  96. have you read any of the blog???

    This is the story of this blog.. so far and a great example of why i’m taking a short position on portugal..

    Baseline, zero hedge, interfluidity and numerous others have written scathing analysis on what’s wrong with America, and Americans read and comment on the Analysis, mostly in agreement that change is required.

    On the other hand, anything written about greece or Portugal is met with lots of hyper-defensive, conspiracy babble, and bleeting calls to ‘leave us alone”. Not a single commenter here makes any analytical defense of Portugal, just ad hominen attacks on the writer. No one takes any responsibility for Portugal’s mess.

    Mass denial is the order of the day here.

  97. Thank you sir, for at least making an argument in defense of Portugal, never-the-less it’s riddled with defensive dribble that makes it a hard read. The authors are not presenting a “manifesto”, but simply making an argument. If you were to bother to read the rest of the blog, you would read numerous such arguments for this and against that. Read there recent book 13 bankers if you want something resembling a manifesto.

    Portugal will not collapse due to some sunlight on it’s finances, and for the rest of us from other parts of the world, who witness and participate in debate’s it’s a sad thing to witness the amount of complaining about the “man” making the argument versus a defense or attack on the argument itself. But i commend you for at least giving us a sense of Portugals strengths, after all the thin skinned brethren above you.

  98. Dear sir, reagaridng this:

    “On the other hand, anything written about greece or Portugal is met with lots of hyper-defensive, conspiracy babble, and bleeting calls to ‘leave us alone”. Not a single commenter here makes any analytical defense of Portugal, just ad hominen attacks on the writer. No one takes any responsibility for Portugal’s mess.”

    I made the simple question. Where the authors got their figures concerning Portugals debt? Wich scneario is the real? That one that the authors gave or the one I show in the document?

    But if you want a more analisys why dont you use a translator and read the PDF document?

    I my personal opinion, their figures come by simple guessing and not real analisys. The document I gave is more real even the government are a little pessimistic about economic portuguese growth. This fact is more understaning if we check latest portuguyese figures on exports and imports.

    Here the problem is simple. Racism against the “lazi south european and an atactk to the euro.

    Of course Portugal has problems. A lot of them but maybe is better than we think if we use some common sense. Portugals didnt have the real estate bubble as in others economies, like USA and UK, where they face a strong real decline in the value of assests and with their debt, unless they reflate, as they are doing, the financial system is broke and the people in real troubles to pay their debt. In Portugal, even with rising unemployment, the financial system is more solid than in USA and UK.

    The portuguese problem isnt easy to fight however the portuguese economic agents are in better shape than USA and UK, because the debt inst so harmful as in the USA and UK. The lack of productivity is a real problem but the last ten years was so hard fot them that the survivors are in better shape to improve productivity and growth.

    The authors think that portuguese companies will not be capable to export. But if they studied the real figures they will notice that exports to Europe is rising in Portugal and imports are stalling. The first signal that portuguese companies are reaping the first signals of their reestructuring effort in the last ten years. Even with the euro more tronger than last year, Portugal exports to outside Europe is growing again, as in the last figures for february are showing a growth of 13%.

    Have the authors checked the figures? They think the portuguese are waiting for strong demand in global growth. Of course portuguese government are expecting that. But in reality the world economic growth is getting stronger again with Asia leading the current economic cycle. ven the authors are missing this reality. The strong economic growth outside the Portugal will help the portuguese economic strength.

    In the last ten years Portugals economic productive sector made a lot of improvements. The creative destruction forces were present in the portuguese economy. A lot of companies died but others survived and improved their strenght. Those companies that survived are now in good shape to export and reap better world and european economic prospectus.

    The authors didnt give where their figures where gathered. They say that in 1013 the portuguese debt will be about 110%. Where they got these figures? Wishful thinking? Or incompetent analisys? Or some figures to ataack the euro?

    They never answered. I understand why. Their figures are pure fiction. I make my judgment about their intentions. Their absence of answers tell me more than they think.

    I think that portuguese, in general and inside the cowntry, they know their situation. They know that their situation isnt so good as even the oficial propaganda tells. But they know too that isnt only the fiscal deficit the problem. Is the lack of economic growth that puted pressures to their balance sheets. So is normal that the keynesian thought think that portugals authorities shouldnt sacrifice their position with agressive measures, that are pro ciclical and wrong.

    kind regards.

  99. I would like to say one more thing. This is important. The financial system of an economy is one of the best economic indicator about the main street. Everyone should know this simple fact. The strenght in balance sheets of financial institutions is correlated with strenght of the others economic agents. Because is the relation of strenght from debtors versus creditors. And in Portugal, the financial system is one of more solid in Europe. All Europe and, I gess, even of the World. What is a strong signal that portuguese economy is more strong than we realise even with their fiscal and trade deficit.

    This signal isnt discussed a lot in public by some analysts. Of course not. That is a signal who is an edge by the good analysts and investors.

    Best regards.

  100. António Cordeiro

    But in Portugal not all the things are bad. Mr António Mexia, CEO of EDP, a public company that produce electricity received in 2009 of wages and bonus a total of 3,1 millions of euros… Mr Rui Pedro Soares, nephew of Mr Mario Soares, executive board member of Portugal Telecom, a private company where the government has a golden share, received 1,6 millions of euros. Mr . Soares has resign because of charges of trying to buy a private television whose opinions are not favourable to the government.
    In Portugal if you had the card of the party of the government your future is bright…

  101. If Portugal, Greece and any other sovereign cannot service their debts, the only sensible course is for them to default/reschedule. It will be awful – truly – but it will at least draw a line under the problem. They should try like hell to hold on, but if they can’t, we should all face reality, take the pain straight-up, and move on.

  102. PJM com esse inglês técnico não vais longe

  103. Caro Gralha, não, não vou longe.

    Fui auto-didacta e não passei pela Independente. ;)

    Abraços.

  104. The lesson which should have been learned in Greece, but wasn’t, is that it has nothing to do with what governments, Papandreou, Sarkozy, Merkel, Trichet, or even Kahn “say”. Conversely, it has everything to do with what the Credit Default Swap (CDS) markets say. The same way that pundits argued against short selling as the “cause” for financial markets’ collapse in Fall 2008, more are beginning to understand the role of the CDS markets in the larger scale soverign debt crises. CDS are essentially the insurance on bonds defaulting, and recently there has been a rush to purchase these contracts by actual bond holders and speculators alike. In Greece these securities foreshadowed and nearly forced action as the insurance on the debt lead to higher yields.

    Greece has a GDP equivalent of $325 billion, while Portugal’s GDP is only $250 billion. Thus the debt market is also proportionally smaller and the ability of speculators to rough up debt markets becomes higher, as the momentum of this EU CDS rally is gaining. The CDS players are now in control, since they were victorious in forcing action in Greece and the premiums still continue to rise even with the EU and IMF behind them.

    These are extremely troubling realities facing Portugal, Spain, Ireland, even the UK as nations are in a race against time, where economic growth MUST rebound fast enough to outpace the interest on those country’s soverign debt.

    Check out http://www.diamondslice.com/?p=17 for a great piece that compares the EU sovereign debt crisis to the global financial crisis, and draws attention to the limited buyout capacity of the IMF in the current situation.

  105. How would they be sued for defamation? On what basis?

  106. Amigo Coelho, please leave Brazil out of this mess, just because Brazil is Portuguese speaking it has nothing to do with Portugal and its growing debt and collapsing economy

  107. Mr. Paine, you are mistaken, Brazil is indeed the China of all the Americas..in the last 10 years Brazil has paid off its debt entirely, has stabilize its currency, has dominated inflation, went from a debtor nation to a lending nation to the USA, has taken 30 million of its people out of poverty into the middle class and its economy is growing at an annual rate of 7%,, 6 times faster that the US economy..by contrast your USA is getting deeper and deeper in debt by the day, has an accumulated debt of more than 13 trillion dollars, has a less than 1% economic growth..is fighting an a war in Afghanistan with borrowed money from China and Brazil…your USA is losing its middle class faster than you can blink you eye… poverty is on the rise despite the Obama regime bailout efforts with borrowed money….and is now facing unprecedented unrest on a verge of another civil war…no, its your USA that is a convenient mirage of false hope and lost dreams, not Brazil.

  108. Mr. Paine, you, Peter Boone, Simon Johnson and company want to talk about Portugal and look, there are quite a few other EU and euro zone countries worse off: Besides Greece being the worse of them all, with a deficit over GDP of 14% and 114% debt of GDP, The United Kingdom has a deficit over GDP of 12%, and a a total debt of 100% of GDP, Spain has a deficit of 11% of GDP and a total debt over GDP of 80% Italy has a deficit of GDP of 10% and close to 100% of debt over its GDP, Ireland has a deficit of GDP of 11% and a debt of GDP of 80%, so all this nations are actually worse off than Portugal, which has a deficit 0f 9% of GDP and a debt of 78% of GDP…. and the grand presumptuous pretentious arrogant conceited USA has a deficit of 10% of GDP and a growing debt over GDP of more than 80% now…so why are the economist picking on Portugal after Greece, why don’t they just pick one of this others that are worse off than Portugal…it surely seems to me that some economists hedge fund managers and currency speculators are betting on the demise of the euro and they figure the best way to do this is to pick on Portugal, a defenseless smaller weaker euro zone nation on the periphery at the extreme west end of Europe.

  109. One thing makes me wonder, why no politician in the world, special the finance ones, say for once in his life, that they were wrong and they are sorry, there’s allways an international crisis to blame, or something else…
    The political world is full of geniuses , so why is the world the way it is?

    The main problem is not economical, is that we the good old people, put our destiny in the hands of not so bright persons, who made their best to position their power and only that.

    In the “comunist” era, the state ownned everything, we have one company for each product made.

    Now in the global era, we tend to the same way, with all the merges and takeovers, in the end we will have the same story, except that the owners will be some faceless persons who make their own rules.

    Let’s put a question to ourselfs :

    In the current days is the state realy necessary?

  110. That’s why you are Ex-Chief Economist of the IMF…

    Shame on you

  111. Don´t blame banks and financial institutions for all the crisis. Blame the politicians, they are paid to take care of the country that elected them. if they don´t know how the should step down not keep pretending and keep fooling its people, that´s dishonesty.

  112. Diogo Sotto Maior

    More than 85% of the Portuguese families are living in their own houses and they own about 6 million housing units. Like myself, a low middle class person, many other Portuguese people owns two houses, one in a beach and the other in town. I even own 3 apartments and two cars, of course not luxury apartments or cars and I don´t have any debt.
    Since 1982, the Portuguese birth rate is negative, that means that all future generations are going to receive one or part of a house from their parents. I believe that in the next 100 years Portugal doesn’t need to build many houses nor highways. We have 230 km of HW per million people and the Germans have only 150 km and spend more than 1% of their GDP in trafic jams, according to “Deutsche Welle Radio”.
    We have 150.000 teachers for 1,4 million pupils and 34.000 doctors in the state health care that is more than Sweden per inhabitant.
    We have about half million students in the universities.
    In the first two months of this year our exports are increasing and are now covering 65% of the imports. It is low, but since 2005 we didn’t reach that level. On the other side, it is known that the Portuguese people have money abroad that covers more than 25% of the GDP. Portuguese bank are paying interest rates lower than 1% for deposits of one year and state bonds are paying 0,65% in the first year.
    The people that are paying their houses are geting lower interest rates. My nephew was paying 550 Euros a month for his house bought at 300 months and is now paying 380 Euros.
    Our banks must increase the interest rates to get the Portuguese money back. I put part of my money in free accounts because I am not particulary interested in puting money at 0,8% a year in a bank nor buying state bonds at 0,65%. This with exception of a certain account at a subsidiary of a Portuguese bank in Macau where they pay a much higher interest rate. It is even an account of the big state bank CGD. Therefore, part of the Portuguese foreign debt is also owned by Portuguese people. Anyway, if I put my money in a bank or if it is coming from Germany it is the same, both are Euros. In a certain way all the money that is in banks are debts.
    I have seen the list and I am astonished because the public debt of Germany and France are higher than the Portuguese one.
    Further, we live with the euro. Therefore if our money stock or agregates go lower it means that the value of euro inside the country is higher. It hapens already, houses are cheaper as well as cars and many other products. In my small business I have to lower my profits to keep selling. Money supply is lower and products must be cheaper. Companies must export to get higher profits and imports must sell cheaper.
    Economist have not study the problem of a big money zone like the euro zone that is the first in the world. Our money border doesn´t is in Spain but in the river Oder between Germany and Poland.
    More important than the public debt is the national debt and the negative commercial balance.
    We have to export more and buy less import products. I could buy a new car, but I am not doing that in the next 4 or 5 years to avoid increasing the imports and I take care not to buy imported products, what is not always possible.
    The state is not going bkrupt because it can increase the Portuguese VAT from 20% to 25% but maintaining the actual VAT of 5% for food products, medicines and cultural articles like books.The VAT at restaurants and hotels isx 12%.
    So the 25% VAT would cover a lot of imported products like cars, computers and many other products that are not essential to live. The Chinese and Portuguese cloths and shoes are so cheap that 5% more doesn´t mater. Only economic professors seems tpo believe that they need to go around in expensives suits, I prefer to use jeans and shirts.

  113. Diogo Sotto Maior

    Portuguese GDP is 250 billion or around 170?

  114. Well, Nyongesa, I beg your difference, I am Portuguese, just read my comment above and you will find that I am assigning the blame where it should be, I wrote that the we Portuguese ourselves and the corrupt incompetent bloated governments that we elect are the ones to blame for our present deficit, debt and economic woes.. But this having been said, there is also no doubt that the Anglo American alliance and their speculators are trying to undermine the euro because they fell threatened that such a strong single currency used by 450 million people might some day in the not so distant future surpass their pound and dollar as the world’s main currency and are presently using Portugal as their scapegoat in their efforts to achieve their most nefarious insidious and pernicious agenda.

  115. Thank You PJM,

    I have gained some insights by reading your lengthy and well reasoned response that helps me see more clearly.

  116. Would be interesting to know what they have to say about this now: http://online.wsj.com/article/SB10001424052748703441404575206210067940090.html

  117. Surely you don’t need me to tell you what defamation is… Its definition on any english dictionary will answer your question unless you’re biased like Simon and Peter.

  118. Mass denial? The evidence – although little – is there, everyone knows it. The difference is in what happens to the markets shortly after a ‘mediatico’ article like this hits the international press. You have no idea how much impact this had on the Portuguese Stock Exchange, when in fact, anyone who actually reads this blog knows how much importance they should give to these opinions (because that’s all this is, an opinion). Facts? Well, in Portugal’s defence I would point you to this http://online.wsj.com/article/SB10001424052748703441404575206210067940090.html

  119. Ãbout thet article in the previous post, SIMON and the others that write in this BLOG, don´t say nothing, BECAUSE THEY ARE ECONOMISTS, AND ECONOMISTS ARE LIKE WAVES, they say one thing today and another thing tomorrow…

    Like anyone said here before, SHAME ON YOU SIMON JOHNSON….

    Interest with your country, because with PORTUGAL, we keep alone, and we don’t need you help to aggravate the situation WHIT YOUR SPECULATION…

  120. A Ponzi scheme, finally someone calling it like it is. Thanks!