Next Up On Europe’s Default Black——-Why Portugal’s Debts Are Unsustainable

By Erico Matias Tavares of Sinclair Co.

Everyone seems to be focusing on Greece these days – a country so indebted that it needs even more loans to repay just a fraction of its gigantic credits. Clearly this is unsustainable and something has to give. Even the IMF agrees.

But what about the other Southern European countries?

Actually, Portugal’s financial situation is looking particularly shaky, and any hiccups could have serious cross-border repercussions from Madrid all the way to Berlin.

The prevailing narrative is that Portugal has been a star pupil compared to Greece, with austerity delivering much better results:

  • The government, a coalition of a center party and center-right party that together have held the majority of parliamentary seats since the 2011 election, pretty much followed all the major guidelines demanded by its creditors (the famous “Troika”) pursuant to the 2010 bailout, and was even praised for it.
  • Exports have performed exceedingly well given everything that was going on domestically and abroad; the managers of small and medium enterprises in Portugal are true heroes, operating in difficult conditions and with limited access to credit.
  • Portugal has recently become a darling of international real estate investors and tourists.
  • The country’s citizens have stoically endured a range of tough austerity measures with surprisingly little social disruption.

So it is understandable that hopes for Portugal’s future are much rosier than in Greece… AND YET ITS FINANCIAL SITUATION IS ALSO UNSUSTAINABLE!

We realize that this is quite a bold statement. So to support our argument we will use some simple math to show where government finances stand after five years of austerity.

Simple Math, Hard Truths

The Bank of Portugal (“BdP”), Portugal’s central bank, publishes debt statistics of key sectors in the economy on a quarterly basis. The link to the latest publication can be found here.

As of March 2015,

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