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Government Sees Deep Recession Ahead for Portugal
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Jurgen Kroger, is the chief negotiator for the European Commission, and Poul Thomsen, heads the IMF negotiating team, for the 78 billion euros in loans extended to Portugal under a bailout agreement. Kroger offered his views on the agreement in Lisbon. Kroger said he was convinced that the program gives Portugal the means to boost growth and jobs, as it builds a sustainable and competitive economy. Two thirds of the loans come from the EU at an interest rate that is yet to be set. The yield on Portugal's 10 year bonds keeps rising and is now at 10.20%. The IMF will provide one third of the funds. The IMF's Thomsen said the issue of interest rates was addressed by arranging for two thirds of the loan package money coming in the first of the three years of the program. What this does is to take Portugal out of the markets for medium and long term debt for a "little over two years" he said and gives Portugal the "breathing space" it needs to restore credibility before going to the financial markets. The fear expressed by analysts is that the tough austerity measures in the programs of the EU and IMF can cause the economies of these countries to worsen, making it even harder to repay the much larger debts when the loan package money is added to the original debt. The IMF and the EU negotiators had to create a credible program for recovery in the light of these facts. Already Portugal's finance minister is predicting a contraction in the Portuguese economy of 2% in 2011, and 2% in 2012. The negotiators appear to have taken this into account in setting interest rates. Portugal will pay the IMF an interest rate of 3.25% for the first 3 years, with the rate going to 4.25 in the fourth year. By comparison Greece's loans are for seven years with an average interest rate of 4.2%. Ireland's seven year loans carry an interest rate of 5.8%, which it is working to renegotiate. To give Portugal more breathing space the terms of the loans set a slower reduction in the budget deficit than originally planned. Portugal gets to cut its budget deficit to 5.9% of GDP in 2011, and 4.5% of GDP in 2012. The 3% target is set for 2013, one year later. Economists such as Carl Weinberg of High Frequency Economics, say the loan package will only increase Portugal's debt and lead to a larger default later on when the debt amount owed is larger. The debt restructuring solution is being actively debated in the EU, including the risks that European banks would take large hits. Negotiators are also mindful of keeping any negative impact on Spain as low as possible. As Portugal's financing costs have risen, Spain's have risen also. Spain offered higher rates to sell 3.4 billion euros of five year bonds on May 5, with the average yield on Spain's bond sale rising to 4.55%, up from 4.39% on March 3.
Actions taken by EU leaders in 2011-2012 to resolve the debt crisis in member countries.
02/26/2011
Actions taken for Ireland, Greece, Portugal and other countries facing debt problems.
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The loan deal Portugal negotiated with the EU and the IMF in May 2011.
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The terms of the loan deal and the problems negotiators faced in coming up with a deal that will give Portugal the breathing space to it needs. The economy is expected to contract 2% in 2011, and 2% in 2012. As a result the defict as a percentage of GDP target of 3% was set for the third year in the three year program, instead of earlier as originally planned. The IMF loan interest rate was set at 3.25% for the first 2 years. Portugal's weakness in competitiveness and in its educational system means Portugal badly needs this breathing space.
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Portugal's Government Thrust Into Turmoil
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Portugalâs President Calls for Early Elections
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Portugal's austerity measures and the financial crisis 2010-2015
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Collapse of the government in Portugal in 2011, after failing to win support for further austerity measures.
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Wall Street Journal 05/03/2013
Portugal Returns to Bond Market
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Portugal Plans Cuts in Spending
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Portugal's Government Thrust Into Turmoil
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Lisbon Cabinet Shuffle Buoys Junior Coalition Party Leader
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Portugalâs President Calls for Early Elections
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Why Portugal is different from Greece in 2012-2013, and yet may find its debt unsustainable as the economy shrinks- the situation in 2012-2013
04/30/2010
Portugal is taking vigorous steps without social unrest, including spending cuts that will stabilize the deficit, labor reform, and increasing exports through trading links to Africa and Latin America. Portugal needs to borrow about 10 billion euros in 2012 and the ratings downgrade has hurt Portugal by raising rates on new borrowing to about 20%. The economy is expected to shrink by 3% in 2012.
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Portugal Returns to Bond Market
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Idea of Euro Exit Finds Currency in Portugal
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Portugal Emerges From Recession
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The EU-IMF loan deals with Greece, Ireland, and Portugal compared 2010-2013
05/27/2010
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Past Rifts Over Greece Cloud Talks on Rescue
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Ireland Faces Seventh Year of Austerity
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IMF Warns Eurozone That Greece Needs Far More Debt Relief
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Portugal- economy in 2010-2015
10/23/2010
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Idea of Euro Exit Finds Currency in Portugal
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Portugalâs President Calls for Early Elections
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Portugal Emerges From Recession
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After a Recession in Portugal, the Tiny Green Fruits of Success
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Portugal Unveils Toughest Austerity Budget Yet
Wall Street Journal 10/16/2013
Portugal's public finances: The apology of Sócrates
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Portugal- government debt, ratings and borrowing costs
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Ratings Gag Is No Joking Matter
Wall Street Journal 07/12/2011
Return of Long-Term Bond Buyers Seen as Crucial to Europe
New York Times 06/29/2012
Greece Gets New Bailout as U.S. Nears Brink
Wall Street Journal 07/22/2011
Wall Street Journal 05/07/2013
Portugal Returns to Bond Market
Wall Street Journal 05/08/2013
Portugal's Government Thrust Into Turmoil
Wall Street Journal 07/03/2013
The debt crisis that Portugal faces, after the crisis in Greece.
04/30/2010
Greece and Portugal are in much riskier shape than Argentina was when it defaulted in 2001, argues Simon Johnson.
Grouped Articles
Portugal Returns to Bond Market
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Idea of Euro Exit Finds Currency in Portugal
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Greece Defaults on IMF Loan Despite New Push for Bailout Aid
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Greece, Missing I.M.F. Payment, Is Called Effectively in Default
New York Times 06/30/2015
Portugal on Road to Recovery Post-Bailout, But Scars Remain
Wall Street Journal 07/20/2015
Ireland- government debt, credit ratings and borrowing costs 2011-2015
05/05/2011
Grouped Articles
Greece Gets New Bailout as U.S. Nears Brink
Wall Street Journal 07/22/2011
Ireland Makes Moody's Less Blue
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Portugal, Ireland Make New Forays Into Capital Markets
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Ireland Launches Inaugural 30-Year Bond
Wall Street Journal 02/04/2015
S&P Upgrades Ireland to ‘A+’ from ‘A’ on Reduced Deficit
Wall Street Journal 06/05/2015
Ireland Shows How to Ski Down the Debt Mountain
Wall Street Journal 09/28/2015
Austerity measures and economic contraction in Portugal 2010-2013- the terms of the 2011 EU-IMF loan agreement with Portugal
05/05/2011
The forecasts of higher unemployment reaching 17% and economic contraction of 7% for 2011-2013 are widely diverging from the original estimates in 2011 by EU and IMF officials. This increases the urgency for reappraisal of the terms of the original agreement including borrowing rates, giving more time to achieve deficit targets, and other action to put Portugal back on the road to growth in 2014.
Linked Articles
Portugal to Seek New Bailout Terms
Wall Street Journal 03/04/2013
Government Sees Deep Recession Ahead for Portugal
New York Times 05/05/2011
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