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.

Sur­vival Con­cerns

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.”

1.6 per­cent


A young boy makes bub­bles with a toy at the Cais das Col­u­nas in Lis­bon, Tues­day, June 9.

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