Portugal – that’s G, I and now P.


Portugal’s Prime Minister resigned last night after he was unable to pass proposed austerity measures in Portugal’s parliament. As a result 10 year government bond yields rose 10 basis points to 7.63% (still far from a buying opportunity in my opinion). So far among the PIIGS Ireland and Greece have had formal bailouts, but it seems that it will be a matter of days or weeks before Portugal goes as well (leaving Italy and Spain). The problem is that the bailouts so far have only postponed what is almost certain to be much larger bailouts in the future. The EU has guaranteed that all debt issued before June 2013 will not be restructured, but this guarantee is just creating further difficulties. Currently Ireland is threatening to force senior bondholders to take a haircut, but the EU is instead demanding that Ireland increase its corporate tax rate. So what is going on? In short, the EU and French and German governments are asking Irish, Portuguese and other PIIGS citizens to bailout French, German and US banks (major holders of these government bonds). What should happen? Sovereign governments are responsible for the interests of their citizens. The best interests of Irish and Portuguese citizens is to default. The defaults should be soon, orderly, and balance out the interest of taxpayers and bondholders. At the moment far too much weight is being given to financial market interests and too little to the welfare of the citizens of smaller European countries. 2013 is far too long to wait to sort this out.

3 Responses to "Portugal – that’s G, I and now P."
  1. Agreed Mark.  Fortunately the EU member States are still democracies, even if the EU thinks it is a plutocracy.

  2. Ireland, Greece, Portugal and Spain are having very similar problems. The important difference is that the Spanish government seems to be the only one that is strong enough to handle the difficult situation.

  3. Given this thread is partially about the power of financial markets:

    Groups across the world are inviting economists who are qualified by post-graduate degree (Master or PhD) to sign a letter in support of a financial transactions tax (see below). The goal is 1000 signers by Friday, April 8th.
    Economists can sign the open letter by entering their details in the comments box at this link: or emailing euderzo@oxfam.org.uk.
    Last year, 350 economists from all over the world signed a letter in support of a financial transactions tax, and over the past year there has been significant political movement towards implementing the FTT in Europe and some other countries. The campaign for the so-called ‘Robin Hood Tax’ is now hugely popular in many countries (www.robinhoodtax.org). The French have made an FTT a priority for their presidency of the G20 and there is a real chance of a breakthrough in the coming six months.

%d bloggers like this: