Portugal and its woes are a far larger problem for the EU.
Portugal Should Follow Greece’s Example on Debt Relief
By the Editors
Bloomberg.com
Mar 11, 2012
Greece has taken a big step toward getting the debt relief it needs to fix its economy and stay in the euro area. Now the question is whether other strapped countries that use the single currency should follow its lead.
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Let’s take a tour of the most likely candidates.
Portugal is the prime one. Estimates of interest rates and economic growth from the International Monetary Fund suggest that, in order to keep its debt burden stable, the government would need to run a primary budget surplus (excluding debt payments) of nearly 2 percent of gross domestic product -- a feat it has achieved in only three of the past 17 years. If it wrote down its debts by 40 percent, the required surplus would be a much more manageable 1 percent of GDP. Markets seem amply prepared for such an outcome: As of Friday, Portugal’s 10-year bonds were trading at a 47 percent discount to face value.
Ireland, too, could use some debt relief, though probably not the kind of writedowns that might impair its access to credit markets. Instead, the ECB should consider adjusting the terms of 30 billion euros in promissory notes Ireland’s central bank took on when it bailed out Anglo-Irish Bank -- an operation that was less crucial for Ireland’s banking system than for the bank’s euro-area creditors. The ECB is understandably reluctant to forgive the debt, which has saddled the government with an annual tab of 3 billion euros over the coming 15 years. But in the hope of boosting growth, it should extend the repayment period to reduce Ireland’s annual payments.
Spain’s immediate problem is its budget deficit, not its level of debt. So for now it does not need a Greek-style deal. And Italy? Thankfully, its obligations are just barely within its means, which is a good thing, for an Italian default would probably be more than the European banking system and the euro could bear.
Full article: http://www.bloomberg.com/news/2012-03-11/portugal-should-follow-greece-s-example-on-debt-relief-view.html
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