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Thursday, March 10, 2011

A Portuguese bail-out won't be enough

Over on Europe’s World we have a post on the future of Portugal. We argue that a bailout now looks inevitable but that it will do little to solve Portugal’s problems due to:
- Funding requirements topping €39.4bn this year alone, equal to 25% of GDP.
- Unsustainable borrowing costs both in the short term and the long term, as we have already noted.
- Over reliance on ECB funding - both the state and the banking sector
- Massive lack of competitiveness as well as few policy options to facilitate economic reforms and foster growth
Given the mountain of issues facing Portugal, a bailout might give the appearance of providing help in the short term, but restructuring debt and tackling the problem at its source - high debt to GDP ratio and massive amounts of private debt - will provide a much better long term solution for both the country and the eurozone. However, even so, in the absence of some serious reforms to boost the country's competitiveness, going far beyond those that we're seeing at the moment, Portugal may find itself in this position again before too long.

You can check out the full article here.

3 comments:

bail bonds las vegas said...

The bailout of any country from here on out won't solve anything because the avalanche has begun.

Boudewijn De Graeve said...

With a group of people in Portugal we have been working on a blueprint for a systemic, radically different solution for Portugal. A selection of related files can be download from http://www.g-repair.com/fpo/.
Could'nt this become the object of a wider debate ? We prepare anyway a program of Crowd-conferences on the projects. The whole approach is being prepared for 6 other countries as well.

Intrinsic said...

With the current Japanese tragedy heightening risk aversion in the markets, there would be little chance that ECB will raise rates in the short run. Spain the least exposed to the debt problems in the PIGS category. At govt yield of 4.2%, they seem to be able to make it out of the crisis in whole.

European outlook