Roubini Topic Archive: Portugal
In the first week of March, the euro area experienced the biggest sovereign debt restructuring in history and the first ever triggering of sovereign credit default swaps (CDSs) for an industrialized country. Yet nothing happened after these events struck Greece. It was a market non-event that was fully anticipated. For the often maligned euro area [...]
Just as it did when Congress recently extended the payroll tax cut, brinkmanship has produced a deal in Europe to extend a new lifeline to Greece and clear the way for the biggest sovereign bond restructuring in history. Both pieces of the agreement—the privately held Greek debt write-down of more than €100 billion and the [...]
Judging from the press coverage of Europe’s sovereign debt crisis, you would think that citizens of Greece, Portugal and other errant countries are in full scale revolt against the measures being imposed to get them back to solvency. But this weekend’s election result in Portugal illustrates the need to separate dramatic television pictures of street [...]
With Portuguese interest rates above the 7 percent level at which their sovereign debt—even if it is considerably lower than that of say Greece—becomes unsustainable, the point in time at which the country will be forced to accept an EU-IMF financial assistance package looks imminent.
This week, the eurozone’s “new normal” played out as a textbook example of how short-term market concerns can have a constructive impact on Europe’s long-term economic future. Under increasing political and economic pressure from rising bond market spreads, the Irish and Portuguese governments finally “did the right thing” and took productive policy actions. The eurozone’s “new normal” (discussed here) is working as intended.
In recent days the eurozone has reentered the headlines (in USA Today, the Financial Times, and the Wall Street Journal among others) amid fears of another round in the continent’s sovereign debt crisis and rising peripheral bond spreads. Yet contrary to the tone of some commentary, this is excellent news. It should be welcomed by anyone interested in the long-term economic health of the eurozone. It means also that financial markets are finally policing the economic policies of troubled eurozone members and punishing the laggards in real time.
Op-ed in Eurointelligence June 22, 2010
Twelve years ago, the Asian Financial Crisis hit. The International Monetary Fund took a common approach across the crisis countries, prioritizing fiscal austerity. In retrospect, outside observers and the Fund itself came to the conclusion this was a mistake—while appropriate for Indonesia, the “It’s Mostly Fiscal” approach made the situation worse than it needed to be in South Korea, with negative spillovers for the rest of the region. The euro area governments, under pressure from Berlin and Brussels, are repeating this mistake.
European politicians, particularly in Germany, are visibly sick of Americans and others telling them that imposing uniform austerity beyond Greece and Portugal is in error. But facts are facts, and it is an error. The experience of the Asian Financial Crisis is directly relevant, and the willingness of the IMF to reconsider its position in the time since would be a good example to follow. What matters is getting policies right, not adhering to a foolish consistency, either in policy recommendations across countries or in publicly taken positions.
by Simon Johnson, Peterson Institute for International Economics and Peter Boone, Effective Intervention
Op-ed in the Wall Street Journal
February 13, 2010
Plutus, the Greek god of wealth, did not have an easy life. As the myth goes, Plutus wanted to grant riches only to the “the just, the wise, the men of ordered life.” Zeus blinded him out of jealousy of mankind (and envy of the good), leaving Plutus to indiscriminately distribute his favors.
Modern-day Greece may be just and wise, but it certainly has not had an ordered life. As a result, the great opportunity and wealth bestowed by European integration has been largely squandered. And lower interest rates over the past decade—brought down to German levels through Greece being allowed, rather generously, into the eurozone—led to little more than further deficits and a dangerous buildup of government debt.