Friday, April 1, 2011
Portugal will follow Greece and Ireland to failure
March 31, 2011
Oscar Wilde famously wrote that to lose one parent may be regarded as a misfortune; but to lose both looks like carelessness. One has to wonder what he might have said about the International Monetary Fund and the European Union. For after effectively losing Greece and Ireland through the standard prescription of draconian fiscal tightening, the IMF and EU look set to lose yet a third country, Portugal.
Indeed, they appear set to do so by prescribing for Portugal the same failed policy approach of savage fiscal retrenchment in the most rigid of fixed exchange rate systems that has had such dismal results to date in Greece and Ireland.
For all of its differences from the Greek and the Irish economies, Portugal shares two common characteristics with those countries. The first is that its public finances are on an unsustainable path as reflected in a public debt to gross domestic product ratio of around 80 per cent, an overall budget deficit of 8 per cent of gross domestic product, and a highly sclerotic economy.
The second is that it suffers from acute balance of payments weaknesses that have been importantly associated with a substantial loss in international competitiveness. Over the past decade, Portugal’s external current account deficit has averaged around 10 per cent of GDP as a result of which its gross external debt has risen to a staggering 230 per cent of GDP.
Posted by Yulie Foka-Kavalieraki at 11:21 AM