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.
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?
Well, he was only prime minister for two years.
Edward, I am much in your debt. These posts are a wonder. Thank you.
That’s something Portugal has been complaining about for years.
“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’.