Portugal: Waiting It Out

Today’s FT Analysis piece looks at austerity and restructuring in Portugal – here.

28 replies on “Portugal: Waiting It Out”

Makes for tough reading considering how preventable and resolvable the situation is.

For Portugal has much the same resources and ability to provide the quality of life it did a few years ago and yet it lacks an adequate medium of exchange to allow co-operative trading.

A medium of exchange which is constantly being eroded through debt reduction and one which can only come into being if someone takes on an even higher amount of debt.

Perhaps decades of unnecessary austerity are needed to keep a system going which is unfit or purpose in the first place.

Why can’t the Portugese and others create a public source of debt-free digital money as needed? How can they possibly restore the economy otherwise since every new euro for the economy must be accompanied by an even higher debt?

@ Paul Ferguson

Why can’t the Portuguese and others create a public source of debt-free digital money as needed? How can they possibly restore the economy otherwise since every new euro for the economy must be accompanied by an even higher debt?

Maybe they need a guy called Moses who could email his god in the ether and order up blanket manna drops?

Even though joining the EMU spawned a credit boom, the majority would likely want the euro rather than a return to their own risky local currency.

All the gold that has ever been mined could fit under the Eiffel tower, giving it value; the situation would need to be dire for broad acceptance of a digital currency.

Life is grim for those without an adequate safety net:

Ms Oliveira, who ran the Café Sola da Colina with her late husband for 27 years, is not entitled to any unemployment benefit, which only an estimated 44 per cent of the jobless receive. Nor does she see much prospect of a job: “I’ve worked since I was 16 and I’m looking again now, but who’s going to take me on at my age?” She is currently struggling on a widow’s pension of €150 a month and hoping her daughter can sell the coffee machine and refrigerators from the café.

I was talking to someone who was in Greece recently. He said “the sense is that nobody has any idea how things are going to change. They know they will get through this but have no idea what will happen in the next few years” .

“The answer to the kind of problems Portugal now faces, as we’ve known for many decades, is expansionary monetary and fiscal policy. But Portugal can’t do those things on its own, because it no longer has its own currency. OK, then: either the euro must go or something must be done to make it work, because what we’re seeing (and the Portuguese are experiencing) is unacceptable.”

Ditto Ireland.

The IT had an article on the web page earlier today about the continuation of austerity when we exit the bailout programme. It seems to have disappeared.
Apparently MN is going to continue it for a number of years.
BTW, exiting the bailout programme doesn’t mean we don’t have to pay the 214,000,000,000 currently outstanding so why the fuss about exiting.

@ flux

What would be the point of leaving the bailout? Seems a good few years too early.

There was a time to default and it has gone.
The only way out now is when pent up anger explodes and the Eurozone becomes politically unsustainable. It doesn’t take much to act as a catalyst here

As you know, that has been my view for 2-3 years. Default & break-up is highly likely. What follows that is uncertain but it Involves austerity acceleration to budget surplus. Something of a paradox.


“The only way out now is when pent up anger explodes and the Eurozone becomes politically unsustainable.”

One of the redeeming features of the clowns running the show is that every time the wheels threaten to come off they panic. I’d say we could be in for an interesting Q4.

@ Flj

As Olli Rehn remarked some time ago, the saga of the euro is not a morality tale. Countries, or rather the players controlling their actions, change direction when it is in their interest to do so.

“An exporting nation that sells two-thirds of its exports to other European countries cannot be unconcerned about its image abroad, they reason, especially when its government fears that constant criticism from the center-left Social Democratic Party (SPD) and the Green Party, claiming that it is acting as the gravedigger of the euro and dividing the EU, could hurt it in the upcoming election campaign.”

The actions now being considered, if not exactly window-dressing, are palliatives, their political purpose being rather obvious.

Wolfgang Munchau had a good commentary on how the situation in Europe is likely to develop.



“What about the resolution of sovereign debt? It will come in the form of a hidden debt mutualisation for peripheral government debt through loan extensions and lower interest rates. Take both to the extreme limits and you end up with the paradox of a perpetual zero coupon bond – meaning a total loss for creditors, never officially recognised. The European Stability Mechanism thus turns into a vehicle to deliver hidden eurozone bonds.”

Five years of hesitation waltz by the duo Merkel/Schaeuble duo has given rise to this situation.



@ Michael Hennigan

The euro is a digital currency and it’s already widely accepted over gold. 97% of M3 is electronic money consisting of the liabilities of the banks.

And just as every liability has a matching asset, every electronic euro has a matching debt since banks create such electronic money through loans.

As it happens, of those euros that are printed only 8% is printed by the ECB and the Portuguese central bank can print euros if it can show the ECB that there is likely to be a demand at ATMs etc.

The Portuguese central bank can create electronic money but it can only do this by recording a matching debt from a bank. I’m suggesting that we could create electronic money and record some sort of a token asset, perhaps ‘money outstanding’, at the central bank instead of a debt.

I’ll be explaining how electronic money is created, and deleted, this Friday in the Central Hotel by the way. We’ll have 8 speakers in total and we’ll be explaining the many side effects of this simple process of money creation.

Full details are available at;


@ All



The SPD candidate for Chancellor is coming under criticism for packing his shadow cabinet with opponents to the Agenda 2010 reforms of Schroeder which the CDU under the Merkel/Schaeuble have enthusiastically embraced.

Schroeder remarked some months ago that “he was not Moses” i.e. the reforms were not written on tablets of stone. A lesson there for Schaeuble, perhaps!


That Reuters article is soul destroying. The European Union economic policy making elite are embarrassing, complete but unaccountable failures. What do we have do to replace these people? Is the EU beyond saving?

EU policymakers and central bankers say highly indebted countries will have no alternative for several years to curbing public spending and shrinking the state, however politically unpalatable that may be.
The lesson that leaders such as French President Francois Hollande and new Italian Prime Minister Enrico Letta seem to have drawn is that they must pursue fiscal discipline by stealth while constantly talking up growth.

Four years of policy failure means we need to redouble commitment to the failed policy but hide it. Leo Strauss where are ye?

@ Flj

I don’t think so. The ground is shifting under the Merkel/Schaeuble roadshow.

Countries will continue on the budgetary consolidation track as they have little choice. But the idea that Germany is doing everything right and need make no adjustments is being revealed for the charade that it is (unwittingly by some of its defenders!). What is of particular interest between now and the election is whether she will feel compelled to steal some of the clothes of the SDP. Such theft could include making some of the adjustments required.

It’s pretty easy to “wait it out” when you’re on a €100,000+ salary with pension benefits, jobs lined up with Goldman et al, and are shunting all the costs onto the poor, the young, and the unemployed. I’ll bet most of these guys have private helicopters.

yesterdays US WSJ ed,number one book wow-hate paywalls but…
“LISBON—A book by a Portuguese economist achieved a small feat on its release last month: It instantly topped Portugal’s bestseller list, overtaking several diet books and even the popular erotic novel “Fifty Shades of Grey.”

The book, “Why We Should Leave the Euro” by João Ferreira do Amaral, has helped ignite a public debate in Portugal about the real cause of the country’s economic pain: Is it only the hated austerity needed to secure European bailout loans, or is the euro?”

here is Ambrose-non paywall,but in fairness came across it in WSJ first-the book or a translation does not appear to be available stateside.


How dissimilar are the problems facing Portugal to those facing Ireland – or in both cases are simply witnessing the consequences of an asset bubble bursting in two over leveraged economies (with the only difference being magnitude of leverage)?

@AC the weather is much nicer oh they have great economists who write number one selling books and actually advocate solutions….link above….
Hold on……I think there was a media ban you may never have heard of this excellent book….it’s modern day porn like Ulysess was sorta banned!

Who is the irish economist with the greatest knowledge of international finance?

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