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21/5/11 15:28![[identity profile]](https://www.dreamwidth.org/img/silk/identity/openid.png){kind=small}
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talkpoliticsTwo years of recession - that's the price for Portugal for getting aid from EU and IMF. And the aiders will have to pay 78 billion euros. In the case with EU the risk of Portugal defaulting is added, as happened with Greece. And this would aggravate the debt crisis in Europe even more.
The conditions for the financial aid will require that Portugal should tighten its financial belt, which equals to 10% of its GDP for the next 3 years. This is a hard task for any country, but even more to one which practically has done no serious economic reforms ever since it entered the Euro zone in 1999. Now the EU and IMF creditors would require from Lisbon a shrinking of the inflated public sector, radical change in the labor market, freezing wages in the public sector and the pensions until 2013 and decreasing the budget deficit by 3% in the next two years. In result the shameful 'honor' of becoming the third country on life support after Greece and Ireland will bring Portugal to recession this year or the next at the latest.
And it's not just some program for fiscal cuts, it's a package which aims to bring growth back to Portugal and make its economy at least a bit more competitive. Really, the plan focuses mostly on the low competitiveness, and rightly so. Also on the low productivity and the stagnating economy, and on the spheres requiring the most urgent improvement.
It's another question if 3 years of deep structural reforms will be enough to transform the slowest economy in the Euro zone and help it generate enough growth to deal with the weight of its public debt, which is expected to reach 100% of BNP. And whether after that period Portugal would be able to survive without the financial crutch of EU and IMF by generating income at bearable interest rates on the capital markets.
And the risks don't end there. The conditions on the loan were accepted by the government in resign which will be no longer working on them. All major political parties which are expected to enter parliament after the election on June 5 have declared their support for the measures. Consensus is good, but until they have started putting the reforms to practice lots of things could change.
The greatest political threat however does not come from within Portugal, curiously it comes from Finland. On the election last month the Euro-sceptic True Finns party made a real breakthrough and became a third political power in Finland. There is still no final confirmation if Finland would support the aid loan to Lisbon.
Portugal's fate is also connected with Greece. If, or more precisely when, its public debt eventually gets restructured which is inevitable, this will increase the pressure on Portugal. The most optimistic scenario at this point is if EU finds a way to prevent a country from defaulting without the seismic shock from this fatally shaking the rest of the weak links in the Euro zone.
The conditions for the financial aid will require that Portugal should tighten its financial belt, which equals to 10% of its GDP for the next 3 years. This is a hard task for any country, but even more to one which practically has done no serious economic reforms ever since it entered the Euro zone in 1999. Now the EU and IMF creditors would require from Lisbon a shrinking of the inflated public sector, radical change in the labor market, freezing wages in the public sector and the pensions until 2013 and decreasing the budget deficit by 3% in the next two years. In result the shameful 'honor' of becoming the third country on life support after Greece and Ireland will bring Portugal to recession this year or the next at the latest.
And it's not just some program for fiscal cuts, it's a package which aims to bring growth back to Portugal and make its economy at least a bit more competitive. Really, the plan focuses mostly on the low competitiveness, and rightly so. Also on the low productivity and the stagnating economy, and on the spheres requiring the most urgent improvement.
It's another question if 3 years of deep structural reforms will be enough to transform the slowest economy in the Euro zone and help it generate enough growth to deal with the weight of its public debt, which is expected to reach 100% of BNP. And whether after that period Portugal would be able to survive without the financial crutch of EU and IMF by generating income at bearable interest rates on the capital markets.
And the risks don't end there. The conditions on the loan were accepted by the government in resign which will be no longer working on them. All major political parties which are expected to enter parliament after the election on June 5 have declared their support for the measures. Consensus is good, but until they have started putting the reforms to practice lots of things could change.
The greatest political threat however does not come from within Portugal, curiously it comes from Finland. On the election last month the Euro-sceptic True Finns party made a real breakthrough and became a third political power in Finland. There is still no final confirmation if Finland would support the aid loan to Lisbon.
Portugal's fate is also connected with Greece. If, or more precisely when, its public debt eventually gets restructured which is inevitable, this will increase the pressure on Portugal. The most optimistic scenario at this point is if EU finds a way to prevent a country from defaulting without the seismic shock from this fatally shaking the rest of the weak links in the Euro zone.
(no subject)
Date: 21/5/11 14:30 (UTC)On the topic: After Portugal joined the club of drowning survivors, the good news is that Spain will probably avoid this fate. But the bad news is that the EU still has no idea how it should put an end to the debt crisis. While the US is already shaking off the scare and is almost forgetting about the troubles (which may be due to short memory span, or a more vibrant economy, or misunderstanding the signs for the longer-term future, or all at once), Europe is still struggling and things are looking from bad to worse.
(no subject)
Date: 21/5/11 15:16 (UTC)[Error: unknown template video]
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Date: 21/5/11 15:34 (UTC)(no subject)
Date: 21/5/11 18:30 (UTC)[Error: unknown template video]
(no subject)
Date: 21/5/11 15:27 (UTC)Iceland is having a different problem. They're basically having their own financial crisis akin to the US, because they made a lot of very bad investments. They can recover, because they have a strong fishing market and they still control their own currency.
However, the euro-zone's problems are difficult to solve. It's very difficult to recover an economy when you can't control your own currency. A lot of people don't realize how important the Fed is in the US. We can control the flow of our currency to deal with financial problems- They can't. Greece, for example, has its retirement age at 55, which I would love, but because they're in the euro-zone they're at the whims of the market which means their retirement spending puts them in a rut.
Spain doesn't have a diversified economy. They don't really produce anything, so they have a trade deficit (more import than export). A lot of labor moved to Eastern Europe when they folded into the euro-zone. Spain has always had a high inflation rate, which is manageable when you float your own currency, but they don't. The building market crashed. A bunch of loans were defaulted on.
Portugal's problems are probably similar to Spain, I don't know much about it. The government took on a lot of responsibilities of private companies that went bankrupt. (They transferred Telecom's pension funds into their treasury, for example). So, now they're responsible for providing retirement for Telecom's employees. That's one of the problems of having businesses provide retirement funds, because everyone wants retirement- instead of having the government take on all this liability (which is just pure debt) when the company folds why not have them just be in charge of it from the get-go so they can budget for this?
(no subject)
Date: 22/5/11 03:55 (UTC)