Portugal shows finances to set apart from Greece
As Greece teeters on the brink of possible default, another bailed-out eurozone nation, Portugal, is showing off its relative economic health seeking to set itself apart from the Greek crisis.
Lisbon has said it intends to pay back this month some two billion euros (US$2.2 billion) it owes the International Monetary Fund, which comes after it repaid 6.6 billion euros — around a quarter of its debt to the global lender — early.
On the other hand the Greeks have bundled a series of debt payments to the IMF, totaling some 1.6 billion euros, pushing back the deadline to June 30, which has spurred concerns it could be heading toward a messy exit from the eurozone.
Portugal’s center-right government has made no secret of the differences between it and the radical left party Syriza which is leading Greece.
“One just has to compare (Portugal) with another country in Europe unfortunately close to us that instead of making IMF payments early is postponing them,” Finance Minister Maria Luis Albuquerque said recently.
“The EU rules apply to everyone. The Greeks have to agree to abide by them,” she added.
‘Among the weak links’
The stakes could not be higher because some economists are concerned that the precedent of a country leaving Europe’s single currency might come back to haunt the eurozone as other countries facing difficulties might feel the heat in the markets.
“Portugal is doing much better than Greece, but despite the progress the country remains among the weak links. Its public debt is one of the highest in the eurozone,” BPI bank economist Paula Carvalho told AFP.
Despite the austerity cure it underwent after being bailed out in 2011, Portugal’s debt increased further last year, reaching 130 percent of GDP — though still below that of Greece’s debt which stands at 175 percent.
But due to the Greek crisis, “Portugal’s borrowing rates have started to rise, and we have witnessed a beginning of a panic in the markets,” said Pedro Lino, manager of financial company Dif Broker.
In his view Italy and Spain are also among the vulnerable countries.
The interest rate on Portugal’s 10-year bonds, a measure of investor confidence, stood at 2.933 percent on Tuesday, after hitting a record low of 1.56 percent in March.
Portugal’s financial future was in much worse trouble in 2011 when, on the brink of default, it received a 78-billion-euro international bailout.
The nation of about 10 million people emerged from the crisis in May 2014 after putting in place an unprecedented austerity program.
In return for the money, the government had to cut wages, pensions and social benefits, triggering mass street protests by the Portuguese, who continue to grapple with high unemployment and increased taxation.
Portugal’s leaders have been divided on the impact of a possible Greek default.
“Portugal is well equipped to cope with possible instability linked to less positive developments in the negotiations with Greece,” Prime Minister Pedro Passos Coelho said in early June.
Finance chief Albuquerque was less confident: “I am worried not only for Portugal, but for the whole eurozone,” she said.
Portuguese banks have significantly reduced their exposure to Greece, currently at 300 million euros against 6.8 billion euros in 2009. The Portuguese government has also lent over 1.1 billion euros to Athens.
After three years of recession, Portugal returned to growth in 2014 and expects gross domestic product to expand this year.
Portugal’s budget deficit also fell to 4.5 percent of GDP in 2014 and the government has promised to bring it below 3.0 percent this year.
With a financial cushion evaluated in late March at 17 billion euros, Portugal “can survive for many months without resorting to financial markets,” said Lino from Dif Broker.
But Domingos Amaral, professor of economics at the Catholic University of Lisbon, warned that “if instability in Greece grows and everything goes wrong, it is obvious that this will impact Portugal and the rest of the Europe.”
A young boy makes bubbles with a toy at the Cais das Colunas in Lisbon, Tuesday, June 9.