The spotlight is on Greece needing more time or money to meet the conditions set by its rescue package. But Portugal seems to be in the same boat, says the FT’s Peter Wise. In May 2011, Portugal agreed to cut spending, raise revenues and implement structural reforms to boost medium-term growth. In return it got €78bn from the EU and the International Monetary Fund (IMF). It was hoping to cut the budget deficit to 4.5% of GDP in 2011 and 3% in 2013, but this now looks unrealistic.
The rapidly shrinking economy has propelled unemployment to 15% and sharply dented tax revenue, which fell 3.5% year-on-year in the first seven months of 2012. The government had forecast an increase in revenue of 2.6% this year. Factor out one-off measures that flatter the figures, and the government has made no progress in reducing the deficit this year, according to Joerg Kraemer of Commerzbank.
Some spending cuts and economic reforms have been enacted, as Wise points out, but they haven’t compensated for the shrinking of the economy at an annual rate of 3%. The economy, in turn, is being undermined further by austerity measures, exacerbating the debt problem and prompting calls for more austerity – the debt trap all the peripheral countries have ended up in. A finance ministry official now says Portugal will either have to impose more austerity or get creditors to relax budget requirements. Either way, the odds of Portugal returning to the capital markets in 2013, as envisaged in the bailout agreement, look remote.