Posts Tagged ‘Portugal’

Portugal moves closer to a Red Euro

April 7, 2013

The common thread running through the countries which are now in or entering the Red Euro zone  is that they have reached their current positions because they have all been incredibly profligate in their public sector while being incredibly lax in controlling the excesses of a rampant private banking sector. Of course the private sector “cowboys” have made obscene amounts of money and ridden off into the sunset. But a large number of public sector employees also made economically unjustified gains in the form of increased salaries and inflated pensions and reduced working hours. Now the piper has to be paid and of course those doing the paying are not necessarily those who gained the benefits. There is a pervading sense of the unfairness of it all.

It is only to be expected that those bearing the brunt of the consequences will fight to retain what they have. Portugal has been teetering on the brink of falling into the Red Euro zone and has been struggling to implement the austerity measures that are deemed necessary. Most of the austerity measures in Greece and Italy and Portugal postpone the day of reckoning but don’t really correct for the previous profligacy. Now Portugal’s Constitutional Court has rejected some of the measures for public sector salary and pension reductions as being “unfair”. Portugal continues “muddling through”  and Government sources are playing down the impact of the Court’s rejections but Portugal is one step closer to the Red Euro. There is an argument that formally establishing the Red Euro zone with a lower value than the Blue Euro rather than “muddling through” with all the Euro constraints, would be a better way to go.

(Reuters) Portugal’s constitutional court on Friday rejected four out of nine contested austerity measures in this year’s budget in a ruling that deals a blow to government finances but is unlikely to derail reforms two years after the country’s bailout.

The measures rejected by the court should deprive the country of at least 900 million euros ($1.17 billion) in net revenues and savings, according to preliminary estimates by economists.

…  Debt-ridden Portugal agreed to a 78 billion euro bailout in 2011 from the European Union and International Monetary Fund. The entire package of austerity measures introduced by the 2013 budget is worth about 5 billion euros and includes the largest tax hikes in living memory, which were mostly upheld.

“It’s a lesser evil. … Putting it into perspective, a good manager and leader should not have difficulty finding room in a budget to accommodate this cut,” said Joao Cantiga Esteves, economist at the Lisbon Technical University.

…. The government has called a Cabinet meeting on Saturday, and would not provide any immediate comment. It has to cut the budget deficit to 5.5 percent of GDP this year from 6.4 percent in 2012, when it missed the goal but was still lauded by its EU and IMF lenders for its austerity efforts.

Analysts consider the outcome manageable and say the government should be able to cover the shortfall with additional spending cuts it has been working on at the request of lenders. Analysts say the lenders could also give Portugal more leeway in terms of budget targets. 

…… On Wednesday, the government easily defeated a motion of no confidence, but the move united all the opposition in parliament against it. Socialist opposition leader Antonio Seguro said on Friday the court’s ruling “reinforces our position in d..emanding the government’s resignation.”

…… The 13 constitutional court judges have been scrutinizing articles of the 2013 budget since January when opposition parties argued that cuts to pensions and welfare benefits undermined workers’ basic rights.

The court rejected cuts in pensioners’ and public servants’ holiday bonuses, as well as reductions to sickness leave and unemployment benefits. They upheld tougher measures such as a reduction in the number of tax brackets, which alone brings in an estimated revenue of more than 2 billion euros.

Last year, the court also dealt a blow to government plans for more public-sector wage cuts, forcing it to resort to tax hikes instead. The austerity has provoked mass protests, but rallies in Portugal have been much more peaceful than in countries like Greece or Italy.

German exports at all time high – proof of two-speed Eurozone

May 9, 2011

No doubt the value of the Euro which is being held back by the economically weak countries helps but it does not explain the strength of the recovery in Germany led by exports. It is not surprising that there are many Germans who are troubled by the burden placed on the European currency by Greece, Portugal and Ireland and begin to yearn for the return of the Deutschmark. There is a real fear among German savers that the achievements will be diluted by the weaker countries which in turn will destroy the value of their savings. The growth rate in Germany is second only to Sweden in Europe but the sheer size of the German economy makes it the real motor in Europe.

There is also an attempt by the German media to create a narrative that it is not unthinkable for a country to leave (or be pushed out from) the Euro. Last Friday’s media rumours about Greece leaving the Euro generally started in Germany. Even though the rumours were hastily denied by everybody, just the fact of bringing it up makes it less unthinkable.

Returning to the Deutschmark?


German exports surged in March to their highest level since records began, as the growing global economy lifted demand for its products and services. The country’s exports for the month totalled 98.3bn euros ($142bn; £87bn), 7.3% higher than February.

Its imports also reached an all-time high, up 3.1% to 79.4bn euros. Both imports and exports are the most since data started to be collected in 1950.

Germany is the world’s second-largest exporter.

Only China exports more than the European nation, and the latest monthly figure for German exports was much higher than market expectations.

“Germany is on the verge of a ‘golden decade’,” said Christian Schulz of Berenberg Bank. Fellow analyst, Carsten Brzeski at ING, said the German economy was now “cruising along smoothly”.

The latest German export figures provide yet more evidence of a “two speed” eurozone, with the German and French economies continuing to grow strongly, while others, such as Greece and Portugal are struggling against a backdrop of high national debt levels. 

Solid demand for bond issues by Spain, Portugal and Italy boost Euro

January 13, 2011
The euro sign; logotype and handwritten.

Image via Wikipedia

The countries are considered among those dragging down the Eurozone but strong demand for Portugese bonds on Wednesday was followed by solid demand for those issued by Spain and Italy today. Earlier this week both Japan and China had pledged to buy the bonds in Europe. Both countries have large cash reserves and are probably attracted by the higher yields but are also making a political statement in supporting the Eurozone. China is on a charm offensive and wishes to be seen to be reaching out to Greece and Portugal.


Spain has raised 3bn euros ($3.9bn; £2.5bn) in an auction of five-year government bonds. The average yield on the bonds was 4.542%, which was nearly one percentage point higher than the rate reached in the last auction in November. However, analysts had feared the yield would be even higher.

The debt sale, which follows a similar auction by Portugal on Wednesday, is soothing fears over the eurozone’s ability to service its debts. Michael Lister, strategist at West LB in Dusseldorf, said: “The figures look really good, it’s the perfect sequel to the Portugal auction yesterday.”

Wall Street Journal:

The Hong Kong dollar rose against the U.S. dollar Thursday as a successful bond auction in Portugal helped ease concerns about the euro zone’s debt problems, encouraging investors to shift funds from the U.S. currency to riskier assets.

Traders said gains in the local stock market will continue to boost demand for the Hong Kong dollar. They said they expect the U.S. dollar to trade between HK$7.7720 and HK$7.7780 Friday.

“Portugal’s bond auction temporarily eased concerns over European debt. Also, the U.S. dollar isn’t likely rise sharply ahead of (Chinese) President Hu Jintao’s visit to the U.S. next week,” said a senior trader at a Chinese bank. Hu plans to meet U.S. President Barack Obama in Washington on Jan. 19.

The Portuguese government sold EUR1.25 billion worth of bonds in an auction overnight, offering good news to investors worried an unsuccessful bond sale could signal tougher austerity measures in parts of the euro zone.

Financial Times:

Spain and Italy on Thursday followed Portugal by holding successful bond auctions, providing a glimmer of optimism in the eurozone debt crisis. Italy sold €6bn of five-year and 15-year debt while Spain issued €3bn in five-year bonds, but both countries were forced to pay higher interest rates than in previous auctions.

The three successful auctions this week from peripheral eurozone countries provide a small amount of breathing room in the crisis. But the elevated yields paid by all of them and their high funding needs mean that investors are still waiting for decisive action from European policymakers.

Italy sold €3bn of 15-year bonds at a yield of 5.06 per cent, up from 4.81 per cent at a previous auction in November. Likewise, the yield on €3bn of five-year debt rose from 3.24 per cent two months ago to 3.67 per cent. Both auctions were fully covered. Spain paid almost a percentage point more than it did in November with a five-year yield of 4.54 per cent.

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