Just over a year ago, Portugal became the third EU member state to require a bailout to ensure that it could meet its obligations. It was the recipient of €78 billion worth of EU/IMF funding, but the package came with a bundle of obligations designed to help ensure that the nation was placed on a firm financial footing. Portugal had relatively high levels of public debt prior to the global financial crisis and essential support during the worst phase of the difficulties pushed its borrowing costs to unsustainable levels.
Like other packages, Portugal receives its financial support in tranches which are dependent upon the nation achieving targets and satisfying inspectors from the EU and IMF that adequate progress is being made. The fourth tranche of payments has just been approved. The report card was mostly positive, noting that export growth had more than balanced weak domestic demand. The economy is expected to contract by 3% this year which is an improvement on the 3.25% expected and it is expected to achieve weak growth next year. Unemployment remains a concern and is expected to peak at 16% next year. The report stresses that adjustments to Portugal’s labour laws are needed to help boost employment prospects. Deficit reduction remains on course to hit the target figure of 4.5% (of GDP) this year.
The next report will be issued in the autumn; by that time the fate of Greece within the Euro should have been decided. Portugal could be affected by a Greek exit, but even George Soros concludes that a Greek exit is unlikely. In Soros’s opinion, the Greek people will elect an administration which is willing to abide by the austerity measures which Greece accepted as a condition for the EU/IMF financial lifeline. “I expect the Greek public will be sufficiently frightened by the prospect of expulsion from the EU that it will give a narrow majority of seats to a coalition that is ready to abide by the current agreement,” - no fool, Mr Soros.