Portugal and the SGP

With all the fuss about Italy, I’ve obviously been neglecting poor little Portugal, but Joaquim Almunia hasn’t forgotten about them. According to Business Week:

The European Union’s head office told Portugal on Wednesday to cut its burgeoning budget deficit and public debt, saying the country’s economic slowdown was no excuse for violating euro-zone rules on sound finances.

Portugal follows Italy and Greece in facing a formal complaint from the European Commission for running up government borrowing way above the limit of 3 percent of gross domestic product set for countries using the euro.

The Head Office eh? I presume they mean the Commission. You can find the relevant document from the Economics and Financial Affairs department here.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

5 thoughts on “Portugal and the SGP

  1. From their description of events, it sounds like there should be a SGP waiver (which I think would be the 17th) for when there is a change of government, since the new one has to clean up some of the shenanigans of the old one — like with Greece. I’m also surprised at the difference between total and primary balance, looks like interest is over 3% of GDP which “seems” high.

    In fact, now that I think of it, wasn’t the PM for most of this mess our old friend, the head of the head office, Mr Barroso?

  2. “I’m also surprised at the difference between total and primary balance, looks like interest is over 3% of GDP which “seems” high.”

    I have no idea what lies behind this, but………

    You have to remember with debt that what often matters just as much as the quantity is the *term structure*, ie when it is contracted, and when it is due. In the case of developing country debt this is what can make the difference between being healthy and having a crisis.

    Now if Portugal still has a lot of debt outstanding from the late 90’s the interest will be higher than what they pay on new debt they issue now. This is the whole thing about the current indebtedness (both public and private), we are getting locked-in to very low rates. Any serious rise in interest rates would cause all sorts of problems. Fortunately, due to the so called ‘global savings glut’ I don’t think we will see this, although what we may see in some cases is a growing ‘risk premium’.

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