With Eyes on Greece, Portugal is Slipping Further into the Abyss
Greece is approaching yet another episode of high social & political tension. The country’s foreign creditors are demanding full compliance with the austerity program after two elections in which anti-austerity forces shattered the ruling political consensus. Greece’s membership in the Euro Zone is again at stake with fears over the consequences an exit would have on Portugal, Spain, Italy, and Ireland.
But news within Portugal increasingly suggest the next domino in the Euro Zone is already falling. The latest official numbers show a program off track, with extensive austerity measures failing to offset falling tax revenue from a Portuguese economy deep in recession. The scenario is not that different from Greece. Portugal is set to miss the deficit target set out in the ‘bailout’ from the IMF and European Union. When Greece faced this scenario, it provoked accusations of Greece breaking commitments and furious demands for Greece to pass through additional austerity.
Now, Portugal, with all attention on Greece’s escalating crisis, faces its own judgment from foreign creditors. How those creditors address Portugal will indicate if there’s been any change of course in European leadership. According to the Diário Económico, the Troika (IMF, EU, ECB) will be updated on the worsening budget numbers and can mandate further austerity this year. Since the right-wing Social Democrats came to power last year, Portugal has been portrayed as an example to Greece. The question is now whether Portugal will receive preferential treatment for the sake of clinging to this myth. My guess, given the hardline taken with far larger Spain, Portugal should expect little lenience from its European creditors.