Another day, another downgrading. On Tuesday, March 29, Standard & Poor (MHP) lowered rating of debt of the Portugal for the second time within a week to BBB-, investment grade lower. Portuguese bonds were hammered, with the yield on its debt in 10 years to the point of climbing to 8%, its highest level since at least 1997, when Bloomberg began the collection of data. The small nation, who have difficulties seems to take a step further to obtain an emergency rescue plan, as the Greece and the Ireland did last year.
The latest crisis was triggered following the resignation of Prime Minister José Sócrates, on March 23 after Parliament rejected his proposed austerity. The political uncertainty in Lisbon makes its economic future much more certain. "I consider Portuguese rescue as a particular plan," says Jacob Funk Kirkegaard, Economist at the Peterson Institute for International Economics. "" "". "There is no way they will avoid it."
The Portugal has approximately 9 billion euros ($12.7 billion) in debt coming due over the next three months, and analysts at Barclays Capital (BCS) believe that the Government has not more than 5 billion euros in cash. It is only sufficient for the Government last April, says Antonio García Pascual, Chief European economist with the South to Barclays. Council of Treasury and Finance Secretary Carlos Costa Pina said Portugal can meet its commitments of debt for the year. Yet with leadership occupied - Government of the Sócrates has now limited powers, and new elections are not expected until may or June - the country will be probably unable to borrow money and is a "status of suspended animation", explains Kirkegaard.
Members of the euro area and Fund International Monetary would have no problem to foot the Bill for a rescue plan. Gross domestic product of 162 billion euros of the Portugal is about 30 percent less than the market capitalization of Apple (AAPL). Even in the EUR 70 billion high-end estimate, a rescue plan would be manageable for the France, the Germany and the other in the monetary union, who are already committed in Greece and Ireland EUR 177.5 billion.
Health for the Portugal road, however, is less clear that solutions for other troubled European countries. The problems of the Greece were massive but obvious: he misled the world about the State of public finances, and many experts now say the country never should have been admitted in the eurozone in the first place. In Ireland, the collapse of a massive property bubble plunged the country into recession and his Government in debt.
The causes are less clear the Portugal crisis. He is not tinkering figures as the Greece did, and he did not experience a financial perspective and the Ireland lines. What he has known is terribly slow growth. Portugal is the poorest country in the eurozone of the original. Economists had expected to grow rapidly and catch up with wealthier economies when the euro debuts in 1999. But other European countries, Portugal have not lived a boom over the last decade. In fact, since the 2000, the Portugal and GDP increased, on average, less than 1% per year, among the slowest rate in Europe. Unemployment is stuck at 11.1%, and the economy is expected to decrease by 1.4 percent this year.
Portugal has "fundamental problems", according to a research note by Emilie Gay, Roger Bootle and Jonathan Loynes of capital economy. They cite non-competitive exports of the country, the poor education standards and benefits of unemployment as factors that "retained the economy during the past 10 years." In the euro area, the Government could hide these problems by borrowing at low prices, throw money at its massive public sector and accumulating debt. These loans are coming due, and Gay, Bootle and Loynes see the possibility of another "lost decade" unless the country is in deep reforms. It is also a warning that the euro area considers expanding the composition of the poor countries along the perimeter of Europe, such as the Bulgaria and the Romania.
As the Portugal struggles to remain standing, many wonder if this is the last of a line of dominos, or switch to the next. In a note to investors, Stephen Lewis, Chief Economist of Monument securities, based in London, said the political uncertainty extended to Portugal has a living as silver medal "a quick rescue could have changed [attention]" to the State of devices banks area euroy including those of the Spain. "" Kirkegaard, said Spain could resist the spotlight: it has already implemented deep austerity measures, aimed at reducing the deficit for the last year from 9.2% to 6% this year and March 17 sold bonds at a rate of 5.16% interestlower than it was paid in December. It is "a Portuguese and Portuguese situation," explains Kirkegaard. "Essentially, Spain a rescue itself."
The bottom line: For more than a decade the Portugal economy increased by 1% per year. This slow growth cycle may be difficult to break.
Emma Ross-Thomas. Lynn is a Bloomberg News columnist and author of the bust: the Greece, the Euro and the sovereign debt crisis. Lima is a reporter for Bloomberg News.
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