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Yanis Varoufakis: Are Ireland and Portugal out of the Woods? (Updated)

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By Yanis Varoufakis, Professor of Economics at the University of Athens. Cross posted from his blog

Ireland and Portugal have, recently, tested the water of the money markets with some success. Portugal has issued 5-year bonds and Ireland is in the process of converting its unbearable promissory notes into long-term bonds, to be sold to the private sector. In addition, Ireland managed to secure the consent of the ECB’s Council to restructure the hated Promissory Notes that added a hefty 20% to its debt-to-GDP ratio back in 2010. So, on face value, two of the so-called ‘program’ Eurozone countries, wards of the EFSF and the troika, are returning to the markets.

But does this mean that they are out of the woods? Is there, in other words, any justification in saying that these two countries are closer today to exiting their ward-of-the-troika status than they were last July, before Mr Draghi’s pronouncement that he will do all it takes to save the Eurozone? The answer to both questions is, I am afraid, a resounding ‘No!’ To see why this is so, it helps to remind ourselves (a) what it means to be ‘out of the woods’, and (b) what Mr Draghi’s OMT program is and how it is affeting Italy and Spain and, through them, Ireland, Portugal.

To begin with, to be ‘out of the woods’ ought to mean a capacity to finance one’s state without relying on direct or indirect state financing by any of the troika’s branches. It means that Dublin, Lisbon, Rome, Madrid can run their own fiscal policy without the direct supervision of the troika and without reliance on the troika’s willful actions to secure the sustainability of that fiscal policy. It will be my claim, below, that none of the ‘fallen’ Eurozone states (Ireland, Portugal, Spain and even Italy) are nearer this ‘happy ending’ today than they were in July 2012.

A Brief History of OMT, Its Nature and Function

The bond market calm that broke out recently is entirely due to Mr Draghi’s OMT (outright monetary transactions) program announcement last September. What was the purpose of the OMT? Put simply, to address the utter incapacity of the EFSF-ESM bailout fund to bail out Italy and Spain. After Germany’s rejection of any suggestion that the EFSF-ESM should be allowed to borrow more money, or that the ECB’s balance sheet should be used to lever up the EFSF-ESM’s funds, it became abundantly clear that, as Spain and Italy were being brutalised by money markets shorting their bonds, there was no way that their combined 3 trillion euro debt could be stabilised. It was at that point that Mr Draghi had to step in, somehow, to plug that gap and, effectively, signal to bond traders that further shorting of Italian and Spanish debt would lose them money.

Thus the OMT was born. It constituted a simple threat, by the ECB, that (if need be) the ECB would purchase as much short term Italian and Spanish debt from the Italian and Spanish banks as it was necessary to burn the short-sellers of Italian and Spanish bonds. Unable to mention Italy and Spain explicitly, Mr Draghi’s OMT specified that the program concerned countries that retained full access to money markets; in other words, that it did not apply to Greece, Ireland and Portugal (which left only Italy and Spain on the menu). This condition killed two birds with one stone: It signalled that which Mr Draghi wanted to signal vis-à-vis Italy and Spain (that the OMT was meant as a stop gap measure to fill in the funding hole due to the EFSF-ESM’s incapacity to bail out Italy and Spain) and, moreover, it left a window open for concocting an alternative to a new official bailout loan for Ireland and Portugal (once their first loan agreement expires).

Markets responded instantly by taking several steps back. While OMT financing was also conditional on Italy and Spain to be placed under troika supervision, under a full troika program, bond traders refrained from testing Mr Draghi’s commitment for two reasons: First, because of the Beauty Contest effect (i.e. each bond trader believed that average opinion among bond traders was that, for the time being, it does not pay to mess with Mario) and, secondly, because Mr Draghi and the EU hinted at a willingness to consider Madrid’s and Rome’s existing austerity policies as a de facto troika program, at least in the short run.

Thus, Italian and Spanish bond yields collapsed despite a colossal deterioration in the real economy’s fundamentals for both these countries. And as their bond yields fell, a rally of all bonds began throughout the Eurozone aided and abetted massively by Mrs Merkel’s decision to proclaim that Grexit was off the table, until further notice at least.

Ireland

The universal fall in bond yields was of particular importance to the Dublin government. Lest we forget, Ireland’s government has for some time been desperately seeking to show the Irish people some tangible evidence that its ‘model prisoner’ strategy was paying off. That Ireland would receive a good behaviour bond from the ECB, in particular with regard to the hated Promissory Notes,[1] and that, soon, it would be able to throw off the ignominious label of being a member of Bailoutistan, of being a ‘program’ country alongside disgraced, failed states like Greece. The OMT offered Ireland a great opportunity to bring an official end to its official fallen state status while, at once, it gave Brussels, Berlin and Frankfurt a golden opportunity to proclaim their first victory – or as Karl Whelan put it in his 2012 paper on Promissory Notes and the case for their re-structuring: “It is the firm hope of Ireland’s Eurozone partners that Ireland, which is widely praised for its willingness to implement austerity measures, be able to access sovereign debt markets by 2013…. A reduction in the funding burden associated with the promissory notes represents a relatively simple way to take such a step.” p.22

The logic was indeed simple: Ireland’s crisis was not substantially different to Spain’s. Its sovereign debt became unsustainable when the real estate sector imploded, exposing its banks to a mountain of debts which were then transferred onto the state’s shoulders. If OMT made it possible for Spain to pretend that it retained full access to the money markets, why could Ireland not maneuver itself, with the ECB’s assistance, into a Spain-like situation: of remaining a ward of the troika after officially, at least, exiting its EFSF program?

What made this easier, in the Irish case, was the fact that some fund managers, Franklin Templeton being one of them, had already wagered a great deal of cash on Ireland managing to become a northern Spain. It is for this reason that Irish spreads had already fallen below Spain’s some time ago (since the hedge and mutual funds’ purchases of Irish debt constituted a considerable percentage of Ireland’s outstanding bonds).

So, taking advantage of the combined OMT-effect and hedge/mutual fund wagers-effect in suppressing its bond yields, the Irish government went to the ECB with an offer the ECB could not, ultimately, refuse: “We are going to offer you a splendid chance, at no cost to the ECB, to proclaim your first success in the fight to end the crisis. Just allow us to stretch our Promissory Notes repayments into the future, while keeping steady the inter-temporal value of our payments to the creditors of our defunct banks.[2] That way, the ECB can say that it has not concurred to the monetary financing of the Irish state while our promissory notes will be converted into long term bonds and sold to the private sector. And why will the private sector buy them now at affordable interest rates? Because if they do, Ireland can be proclaimed to have regained access to the markets, in which case Ireland is suddenly perfectly eligible for the OMT program: a member-state with full access to money markets and a pre-existing troika program. Immediately, bond traders will cease and desist from shorting Irish bonds even if we try to sell a large number of fresh ones. As for the icing of the cake, from the ECB’s perspective, the ELA will be used far, far less, allowing the ECB to claim a return to normality in that regard too.”

The ECB’s recent announcement of its agreement on the conversion of Ireland’s promissory notes into long term bonds concludes this deal: The Irish taxpayer will continue to be burdened with huge, unsustainable long term debts taken out by bankers who are now defunct and who should never been backed by the Irish state. Austerity-driven self-perpetuating recession, and the resulting stalled recovery, will remain the order of the day. The fact, however, that Ireland’s sovereign debt is unsustainable and that its largely self-inflicted austerity has failed will, from now on, be hidden behind an OMT-created façade. The troika will continue to be the effective government of Ireland and the Irish state will continue, just as it has been since September 2010, to require the direct interventions of the ECB in order to maintain its ‘market access’. All that has changed is the rhetoric, which now rewards Dublin with the Pyrrhic victory of claiming, with a little more self-confidence, that “it is not Greece”.

The Sad Truth Behind the Shadow Play

German and, in particular, Bundesbank objections to both the OMT and the deal on Ireland’s Promissory Notes was based on the ‘standard’ fixation with ‘moral hazard’. Would such ‘non-standard’ measures not cause Italy and Spain to think of exploiting Mr Draghi’s announcement or their ELA facilities to bail out their banking systems, without dragging themselves through the bed of nails that Ireland rolled over? What overcame these ‘fears’ was the thought that the OMT program’s announcement and consent to stretching Ireland’s Promissory Notes’ burden into the future would deliver the troika the grand political trophy of having Ireland (and perhaps Portugal) out of the EFSF-program frying pan, with an official announcement that ‘pain works’ and returns the righteous to the money markets. An added bonus is, of course, that very few astute observers will notice that, having escaped the EFSF-program frying pan, Ireland and Portugal will fall into the fire of OMT-led austerity.

In conclusion, Mr Draghi’s OMT has undoubtedly succeeded in addressing a sequence of political headaches:

How to avoid telling the German electorate that Spain, Ireland, Portugal and, eventually, Italy will need gargantuan fiscal assistance that the EFSF-ESM was incapable of providing.

How to break the news to them, months before the German federal election, that Ireland, Spain and Portugal, in addition to Greece, will require fiscal financing ad infinitum.

How to tell the Irish people that their suffering had no tangible effect.
All these questions are now answered in one, brief, liberating sentence: Ireland has escaped Bailoutistan and Spain has been prevented from entering it. Even Portugal has issued some five-year bonds! Bring on the champagne!

But as the champagne corks are liberated, and the merriment’s din fills our ears, it is worth maintaining a connection with reality. And the reality is particularly stark: There has been no progress whatsoever! Indeed, the Eurozone crisis is getting worse the calmer the bond markets seem and the more confident the commentariat is becoming that Ireland and Portugal are out of the woods. If the resolution of the Euro Crisis was all about replacing EFSF-ESM funding with the ECB, without decoupling the banking from the debt crisis and while a vicious asymmetrical recession is eating into the heart of Europe, then of course the Crisis is over. Alas, it was never about that. And so the good ship Eurozone sails on, taking water in at an increasing rate that drowns more and more of those below the decks, while its first class passengers, pacified by a cunning captain, are downing the champagne.

______
[1] Guarantees offered by the previous government to two failed banks, which involved annual repayments by the taxpayer to failed bankers and their creditors as cruel and unusual as the annual tribute sent to Crete by the Athenians (i.e. Athenian boys and girls to be devoured by the Minotaur).
[2] Following the initial edition of this post, Wolfgang Munchau published an article in the Financial Times that contests my claim that the inter-temporal value of the Promissory Notes was held constant. He writes: “This is monetary financing for all intents and purposes. The whole structure of this agreement is so convoluted that newspapers do not report all the relevant details. As always, convolution has a purpose. It renders legal what would otherwise not be, and it allows for obfuscation.” I agree, complexity is pressed, yet again, into the service of subterfuge. My point here is based on the same source as Wolfgang’s: The excellent paper by Karl Whelan, entitled ELA, Promissory Notes and All That Whelan writes on p.20: “…the current schedule would mean that IBRC will be able to pay off its ELA debts (with presumably all other debts long gone) in 2022. At that point, the government could wind up the IBRC and simply cancel the remaining payments. Note here that the total amount of promissory note payments in this example would be €37 billion. The additional €11 billion in payments scheduled after 2022 just wouldn’t happen.” If we take into account that the Irish government, as Whelan says, would not honour Promissory Notes beyond 2022, since by that time the IBRC’s debts to the ELA will have been repaid, the new long-term bonds’ inter-temporal value will be equivalent to that of the Promissory Notes’ present value.

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29 comments

  1. jake chase

    I wish someone would explain why the Eurozone makes sense to anybody except a few giant corporations and their executives, some bankers bond traders, and a bunch of bureaucrats.

    They are putting three hundred million people through the wringer, and for what?

    1. Austin From Boston

      “They are putting three hundred million people through the wringer, and for what?”

      So the rich stay rich. If we had a real accounting (and reckoning), the banks, the executives, and much of the 1% would be bankrupt themselves and on the way to jail. But given the vast wealth we so foolishly let them accure over the past two decades, they now control a corrupted government that will do their bidding to keep them in power. Until we force a true accounting of the debts, financial and legal, they will only grow more despotic as the economy crumbles further from beneath their feet.

      1. Henry

        Didn’t a great banker once say”let me control the money of a country and I care not what laws they make.”

  2. The Dork of Cork.

    This is what Frances Coppola talks about.

    The function of a country is to sustain people with large money claims over it and nothing else.

    To make this odious arrangement just sustainable enough to continue the extraction operation the various high priests came to some sort of arrangement.

    From a physical economy perspective the vast empty european entrepot economy of long distance horse trade is a very sick joke and a outcome of this strange monetary system where governments must remain in debt to private banks and individuals to the point where there is not enough medium of exchange to sustain rational internal activity.

    Indeed its why very little internal economic activity happens in this nightmare Soviet world.

    Its hard to describe how Ireland has changed over the Years.
    The Soviets have destroyed a peasant country that although was never a monetary sov jurisdiction was closer to physical independence through increased physical redundancy.

    In 1973…..
    First they came for the small farmers
    1979
    1986
    1992
    2002

    Ireland was a nice place to live and grow up once…..
    Ok you had to keep your ass close to the wall but it was a land of Horse and cattle fairs…..
    Of real human activity.
    Its not a real place anymore.
    Its a sick synthetic construct of useless purpose that now like the rest of Europe no longer has a soul.

    Ode to the slave masters

    http://www.youtube.com/watch?v=xpcUxwpOQ_A

  3. The Dork of Cork.

    Before Europe grasped us with its cold deathly monetary grip….

    Real trade done in real streets…..

    Very little pointless (for most) energy / labour arbitrage.

    http://www.youtube…atch?v=6Fz67YCIz1o (5.30)

    Now ?

    Well with the help of the Euro health & safety fascists and the lack of cash flow very little is available to waste other then on vast petro flows that enslave us.

    And of course such dirty business as local domestic commerce is kept away from the now clean and empty streets (other then the cars of course)

    The quiet and not so quiet men in peek caps that I remember are long gone now.

    All that remains is a emptiness.

    http://www.youtube…atch?v=iu1tWx1nLRo

    Modernity (credit hyperinflation) have left us stranded on a dead calm monetary sea.

    The Romanian nags found in the European food chain after commission dictats on animal based transport is at least a tiny bit of sweet justice.
    Enough for a quick laugh anyhow.

  4. The Dork of Cork.

    I can remember a huge money supply in that chaotic town back in the late 70s /early 80s.

    All to buy Cattle and Pints of porter.

    The streets were covered in Cow shit.

    Now everything is very clean & very structured………….nothing much happens really.

    Antiseptic Ireland ,a country without a money supply.

    http://www.youtube.com/watch?v=HNUxWypiS1g

  5. Paul W

    The real question is: what’s wrong with western citizens? How can they continually take this crap like a herd of frightened sheep? When someone waves the flag they are willing to go die fighting for their country. Yet they won’t fight for their children’s future? In Greece people are committing suicide because of the economy. What good does that do their families? It’s time to begin taking out the politicians, bankers and financiers. Yes there will be a backlash but what do people have to lose? Instead they sit quietly watching their country trashed and pretend it isn’t happening. Pathetic!

    The top 1% are initially responsible for the problem. However the weak and frightened 99% have made the problem a hundred times worse.

    1. Big Brother

      When they still have electricity, they watch television. When they dont have television, they dont know what to do.

      Most people doesnt have same level of education, than people here. They dont know what else to do, than throw police with molotov cocktails. Theres not really any alternatives for this on mainstream and naked capitalism isnt mainstream. If you dont know, that you are getting screwed, how can you do something for it?

      Long live invisible plutocracy!

  6. Tom

    Given all the protests that have happened by the people most affected….that takes them out of the coward basket.
    Given the silence and deliberate direction the money interests have gone in opposition to the brave (the mass of destitute people)….I would conclude the elite and the top 1% are the cowards.

    “To sin by silence when they should protest makes cowards of men.” – Abraham Lincoln

  7. steve from virginia

    The foundational assumption upon which this analysis is erected … is faulty. Everything that follows can be disregarded.

    @Varoufakis:

    ” … to be ‘out of the woods’ ought to mean a capacity to finance one’s state without relying on direct or indirect state financing by any of the troika’s branches.”

    To be ‘out of the woods’ must mean that a state, its firms and citizens can operate … from returns on goods and services produced by the state and its citizens without the need for any finance at all.

    Because Ireland and other European states except Norway and Denmark must ‘borrow’ their entire fuel supply from Russia and the Middle East (save for some low-quality coal found in central- and southern Europe … because the only merchandise ‘goods’ that Europe can offer in return for its fuel supply are energy waste-enablers such as automobiles and military hardware … because the only OTHER good that Europe can offer is false promises in the form of the ‘euro’ … there is no possible way for Ireland or any other European state to be out of the woods even partially except for previously mentioned Russia, Norway and Denmark.

    The days of these last countries ‘out of the woodsiness’ are numbered as their fuel supply is turned into exhaust fumes as fast as humanly possible by their hard-headed (insanely greedy) business managers. After all, nobody wants the numbers on a computer screen to get smaller … right?

    The means by which Europe ‘borrows’ its energy is finanace. The means by which Europe annihilates its energy supply is also finance. It should be perfectly clear why banks are bailed out at all times at whatever cost. If there are no banks, no finance, no ‘banksters’ there can be no energy waste.

    There is no modernity, either, ‘United States of America’ can be substituted for Ireland, so can China, Japan, Brazil or any other country … Yemen.

    Without a fundamental change — jettison modernity — we will all be Yemen, survivors wandering in the deserts of our minds, wondering what the heck happened to us.

  8. craazyman

    Where the hell did Ditmer go? this is too confusing to understand. Too many acronyms, too many bureaucracies, too many politicians, too many inter-relationships, too many scenarios, too much confusion.

    It’s like a Baroque ceiling painting in France in the 1700s.

    We need a Cezanne to simplify, simplify and simplify.

    Where is Dittmer? He ran away like a coward after half the peanut gallery outsourced their thinking to him. I’m not angry at him and I’m not trying to insult him. I’m just hurt and frustrated. We need somebody who can simplify this into something we can understand, so we know what to do.

    He can probably do it. I don’t want to start begging so I’ll stop here.

    1. JEHR

      I listened to the first talk by McDonough on how the Irish were scammed both by their own government and by the troika. I can see where the more complicated things are made, the better the banks and bond holders can scam the people and the less well understood the process is. All of this is done through the magic of “new” accounting practices. The acccounting profession has a lot to answer for, too, just as the economics profession does.

      The banks should have been bankrupted or nationalized or both rather than go through this long, long austerity program that the Irish government has put on its people. Shame it is!

        1. The Dork of Cork.

          PS
          Ignacio

          Tax comes after the event…………..

          Tax has got really nothing to do with in the great scheme of things.

          Government refuses to govern as a real state. or even a hybrid bank / politician nation state system of control.

          It has conceded to market state operations as it is so profitable for the insiders which include government.

  9. diptherio

    “Asymmetrical Recession,” I like that phrase.

    So after wading through the verbiage and endless acronyms (VAEA), my take-away is this: the financial sector has been rescued from the worst effects of the Global Financial Crisis, but the rest of us are still being hung out to dry. The pundits insist on equating recovery in financial markets with recovery in the real economy, even though the financial sector has become so divorced from the real economy that this equation is utterly ridiculous (as anyone who’s had to look for a job lately can attest to).

    It’s the same story we’re being fed over here in the US. The Dow’s up, everything is better! They’ll keep saying that right up to the point where the peasants are at the gate with the pitchforks and torches.

  10. Ignacio

    A somehow off topic comment: I read yesterday that Microsoft, Apple, Google, Amazon, Ebay and Facebook, combined, paid 25 million euros in Spain in 2012 in taxes after benefits. I don’t know exactly what was their combined income last year but I guess it must be around several billion euros. The source was an OCDE report cited in EL PAIS, the most important newspaper by sales. In fact, Apple pays taxes in Ireland for incomes and benefits made in Spain (and many other EU countries). Total taxes paid by Google in Spain accounted to 5% of their benefits in Spain, were the tax rate is 30% on benefits. The OECD says that they will “try to fix this fiscal gap in 2 years”. It looks like the typical statement that will soon be forgetted as the control over fiscal heavens.

    These facts pile up with corruption scandals affecting the ruling party that involve several millions evaded in fiscal heavens. Not to mention other scandals affecting banksters. Corruption is simply part of the system and I don’t expect that anything serious will be done about it. The scandals will fade as usual.

    At the same time austerity is hurting millions in the country. JP Morgan happily stated yesterday that Spain is becoming the new “South Germany” based in so-called competitivity gains.

    I cannot express my anger accurately in English.

  11. Susan the other

    This article is great Varoufakis. Sometimes he loses me before I even get started but this was really cogent even for me. Not that I understand all of it. When he wrote, ” Convolution has a purpose to render legal what would otherwise not be” I thought of the struggle we go thru here trying to understand this rip-off every day. Every single day. If it weren’t for Yves and a handful of people like her we wouldn’t know a damn thing. Yes the ECB has betrayed Europe. But the real betrayal was made by politicians. The economy is a political construct, so are bonds and so are decisions to use fossil fuel like drunken sailors. One thing I’m puzzled about is that I thought the Germans and the ECB cooked up a scheme to make their own bond buying “legal” by selling the bonds to China first and then buying them back from China on the secondary market. I probably got that completely wrong, but if there is some truth to it it raises the question, How long will China cooperate? Because the West, or the rest of the West, is busy “containing” China, literally depriving them of oil, and cutting off their exports. This can’t end well.

  12. financial matters

    ‘Thus, Italian and Spanish bond yields collapsed despite a colossal deterioration in the real economy’s fundamentals for both these countries’

    ‘The logic was indeed simple: Ireland’s crisis was not substantially different to Spain’s. Its sovereign debt became unsustainable when the real estate sector imploded, exposing its banks to a mountain of debts which were then transferred onto the state’s shoulders’

    ‘The Irish taxpayer will continue to be burdened with huge, unsustainable long term debts taken out by bankers who are now defunct and who should never been backed by the Irish state’

    ‘The fact, however, that Ireland’s sovereign debt is unsustainable and that its largely self-inflicted austerity has failed will, from now on, be hidden behind an OMT-created façade.’

    Nice article. Basically in line with Michael Hudson in that debts that can’t be paid won’t be paid.

    “Financial crises tend to grow worse until insolvencies wipe out saivngs that have been badly invested”

    from ‘The Bubble and Beyond’ (2012) by Michael Hudson Chapter 2, ‘The Magic of Compound Interest: Mathematics at the Root of the Crisis’

    and the somewhat MMTish sentiment of the ‘prophecy paradox’ described by Yanis Varoufakis in his excellent book ‘The Global Minotaur, America, the True Origins of the Financial Crisis and the Future of the World Economy’ 2011

    this book brought up another interesting point called the ‘prophecy paradox’ which makes safe predictions impossible. It has to do with whether or not CEOs are optimistic or not about the future business climate.. This determines whether they will invest money to create new products. If no-one invests then there is minimal employment and kind of a self-fulfilling recession. If everyone invests in productive activities then there is full employment and people have money to spend on each others products.. If only a few people invest they could lose their investment as there won’t be enough employment to support demand for their product..

  13. The Dork of Cork.

    The key to understanding Ireland is its basic inputs (food & fuel data) import data……
    discount the industrial export data – it is corrupted by pharma operations.

    This paints a portrait of a country in deep crisis.

    The classic warning signal for Ireland is when fuel imports exceed food imports.
    (This has been the case since the crisis began – and illustrates a lack of spending power from this sad conduit suburban economy)

    Also the small role of German (7%) and China (6%) imports is in deep contrast to UK trade data where these countries dominate imports and real goods trade deficits.

  14. The Dork of Cork.

    In the UKs case 12.9 % of goods imports are German
    7.7 % of goods imports from China

    UK trade for historical & geographical reasons still dominates Irish trade.
    2012 Imports million euro
    GB : 15,419
    NI : 1,023

    The next biggest euro import country is Germany at 3,414

    Total EU imports was 29,220 in 2012.

  15. Tuga

    The analysis is political not economic.

    Portugal in 2012 had a small fiscal surplus before interests paid.

    Portugal in 2012 had a fiscal deficit of 4,6%, including the interest paid. Bear in mind that Portugal suffered the costs of high interest rates just before the Troika intervention.

    Maybe the Portuguese success causes some jealous in some people but Portugal is leaving theirs crisis. Portugal is the country where exports outside Europe rose 20% in 2012. And these exports rose when the euro currency was strong against the euro competitors.

    Portugal will have a surplus of 4% of their GDP in the Current Account Balance.

    Maybe some are jealous with the relative success of Portugal but they deserve all the good things. They fight hard without blaming others for theirs own mistakes. It is hard for them but they are doing what is needed to leave their crisis.

    Maybe some have jealous but it is theirs problems. Not of the Portuguese.

    1. from Mexico

      Oh well, black is white. Up is down.

      You surely have a strange notion of success.

      For Q4 2012, exports were 11.1 billion euros. That’s almost identical to Q4 2011, when they were 11.0 billion euros.

      What fell precipitously during this same period were imports. They fell by 3% from the previous year. But that’s not called prosperity. That’s called pauperization. But even with the precipitous falloff in imports, there still remains a huge trade surplus: 2.6 billion euros for Q4 2012.

      http://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_destaques&DESTAQUESdest_boui=149826019&DESTAQUESmodo=2&xlang=en

      The unemployment rate estimated for the 4th quarter of 2012 was 16.9%. This value is up 2.9 percentage points from the same quarter of 2011 and 1.1 percentage points from the previous quarter.
      http://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_destaques&DESTAQUESdest_boui=149826309&DESTAQUESmodo=2&xlang=en

      GDP for Q3 2012 was 3.9% below Q3 2011, and 0.4% below Q2 2012. GDP for 2011 was 1.6% below what it was in 2010.

      http://countryeconomy.com/gdp/portugal

      1. Tuga

        This is the normal adjustment.

        Every adjustment and deleveraging means less imports, less internal demand and a fall in the GDP. Every since the beginning of times.

        But the Portuguese exports are rising especially to outside Europe. In all 2012 the exports rose 5% and bear in mind that almost 70% of their international trade is to Europe who is in recession.

        Only in the USA we are seeing a new economic theory: expansionist austerity. It is a new theory, fake and wrong.

        In Portugal they are suffering a lot but they are changing their economy. Their unemployment (lagging indicator( is rising but their chronic debt is shrinking and they are fixing theirs public finances, theirs house finances and even theirs corporate finances. The Balance sheet recession.

        But to avoid a long crisis they need to suffer the crisis but it will give them a new future and better economic growth.

        What is is strange is an article about Portugal but it is only political propaganda against the ECB and Ireland. Nothing to do with Portugal.

        This Greek should blame their own leaders and people. In Portugal they do not blame others for theirs own mistakes. they do not blame the immigrants. They do not blame the German. They do not blame the bankers. They only blame themselves. And this is why they are changing quickly theirs economy even feeling the pain of the speculators against them. Maybe the author of the article should visit Portugal and ask the Portuguese what are they doing to leave theirs crisis.

  16. Tuga

    By the way. To the ignorants who do not understand why the portuguese interest rates are falling since one year ago, I suggest them to study more the economic indicators of the countries instead to see conspiratorial theories about the rise in the price of the bonds:

    http://www.freeimagehosting.net/qfjwu

    You can find more here: http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/IndicadoresConjuntura/Publications/ind_jan13_e.pdf

    Some have jealous of the Portuguese, others understand economics 101.

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