Portugal's Debt Crisis Deepens as NATO Summit Brings No Relief

Strategic Insights -

The NATO summit was a brief distraction for Portugal, a country struggling to avoid becoming the next domino to fall in Europe's spreading debt crisis. Ireland's request for a bailout from the European Union and International Monetary Fund has brought little relief, with the Portuguese government facing mounting pressure to request aid as the country's bond market pushes up the interest rate it has to pay on its 10-year bonds to 7.2 percent. The government has warned that it will consider pleading for IMF and EU help if the rate goes above 7 percent, while the country's two main labor unions have united to call a general strike for the first time in over 20 years.

Key Takeaways:

  • The Irish bailout has had little impact on the Portuguese economy, with the country's bond market continuing to struggle and the government facing mounting pressure to request aid.
  • The Portuguese government has warned that it may need to consider pleading for IMF and EU help if the interest rate on its 10-year bonds exceeds 7 percent.
  • The country's two main labor unions have united to call a general strike for the first time in over 20 years, underlining the strength of public unhappiness with the government's austerity measures.
  • The Portuguese government is facing significant challenges in reducing its debt, which has risen to 76 percent of GDP, and is expected to propose a 2011 budget that aims to cut the country's deficit to 4.6 percent of GDP.
  • The country's economy was only just beginning to drag itself out of a prolonged slump when the global crisis knocked it back down in 2008, and the effects of the crisis are still being felt.
  • The Portuguese have a tradition of non-violent protest, and it is unlikely that Lisbon will suffer a repeat of the riots that left three dead in Athens six months ago.

Statistics:

  • The interest rate on Portugal's 10-year bonds has risen to 7.2 percent, compared to 2.57 percent for Germany.
  • The Portuguese government has warned that it will consider pleading for IMF and EU help if the interest rate exceeds 7 percent.
  • The country's debt has risen to 76 percent of GDP.
  • The government is expected to propose a 2011 budget that aims to cut the country's deficit to 4.6 percent of GDP.
  • The country's two main labor unions have united to call a general strike for the first time in over 20 years.

Sources:

  • GlobalPost, "Portugal's Debt Crisis Deepens as NATO Summit Brings No Relief", Paul Ames, Nov. 24, 2010.
  • Newstex, "Blogs on DemandA'".