Is Portugal about to dragged into the Greek tragedy? The outlook for Portugal, one of the PIIGS (Portugal, Ireland, Italy, Ireland Greece, and Spain,) is not looking good. Its interest rates have soared and the Lisbon stock market has fallen more 3%. If Portugal is the next to go, it means another massive bailout. Either that, or it's the end of the European Union.
Bloomberg reports that Portugal's public debt is sitting at 77% of gross domestic product. But if you include corporate and household debt, the burden exceeds that of Greece and Italy, and comes out to a whopping 236% of GDP. The savings rate is the fourth-lowest among 27 members of the Organization of Economic Cooperation and Development.
"The Greek crisis has started to spread to the rest of the periphery and Portugal seems to be next in line. The situation there is less urgent than in Greece, but the medium-term outlook is challenging. Unless Europe's leaders can draw a line under the situation, Portugal could face an uncomfortable period," Darren Williams, senior economist at Alliance Bernstein told Reuters
The credit default swaps market, which measures the cost of insuring debt, has spiked and that's a bad sign.
It means there will have to be more bailouts. World leaders have already pledged €45 billion ($US60 billion) to bail out Greece but they are admitting that this is just the start. Greece's debt problems are so profound they will have to come up with more. And even more for Portugal.
"It's more likely than not that we'll need an IMF programme in at least one more country in the euro area over the next two to three years,'' Ken Rogoff, a former chief economist at the IMF and now a Harvard professor told The Independent.
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