Portugal’s Economy is Looking a Little Less Porky


Reckoning today from Porto, Portugal…

What would the PIIGS be without Portugal? GIIS?…SIIG?…SIGI? Whatever the case, it wouldn’t have that delightfully apt porcine ring to it. For editorial purposes, therefore, we hereby stand by Portugal’s continued inclusion in the eurozone.

Economically speaking, however, things are a little different.

“Chuck ’em out!” we say. In fact, chuck ’em all out! That’s right. Chuck the Zorbas and the Castilians…renounce the Romans…pitch the Paddies…fling the Frogs and dash the Dutch. And you can give the Germans the ol’ heave ho, too.

All of which is to say… “Eject the euro!”

The ersatz currency is a farce, as our Fellow Reckoners well know. It’s intolerably slow undoing has dragged on like a royal wedding. Everyone knows the outcome will be inglorious…ignoble….ignominious. Why waste everyone’s time?

News out reveals — shock! — that Portugal’s economy is still shrinking. And, according to the wizards at the global research division of Citi, it will “probably require an extension of its bailout package despite the fact that the government has dutifully reduced its expenditure and diligently implemented most of the measures mandated under the Troika program.”

Here’s a slab from the report:

“In our base case scenario, we expect that Portugal will remain a member of EMU, in contrast to Greece, for which we see a 90% probability that it exits the euro area…

“We continue to expect the contraction in [Portuguese] GDP in 2012 and 2013 to be deeper than the consensus view, and believe that Portugal will miss this year’s deficit target (of 4.5 percent), despite having met the target in the first half of 2012…

“While an upcoming extension of the bailout package would be unlikely to come with debt restructuring, we expect that, in the next 1 to 3 years [that] debt restructuring, including private- sector involvement (PSI) and official sector involvement (OSI), will take place as the Troika program likely fails to return Portugal to fiscal sustainability.”

OSI…PSI…GDP… How can anybody take these guys seriously? Oh, a “90% probability” that Greece exits the EMU? Really? Not 89.3%? Not 91.2%? And why is 4.5% the appropriate “deficit target” for Portugal this year? Why not 4.3%…or 4.6%?

And how does one measure this thing called Gross Domestic Product anyway? Using the “expenditure method” of GDP computation, government spending is counted as a net positive for the economy…as is building a house, then knocking it down and building it again…or building a house that nobody wants…or paying a bunch of officious jackasses at a bank exorbitant fees to produce exact numbers for things they couldn’t possibly know in a million years.

But is that real growth? Is that a real improvement in the lives of individuals? Are people happier…healthier…and living fuller, more satisfying lives? Do they have better relationships with their children…cook better carbonara…drink finer vinho do Portos?

Of course, the economists don’t know. And they don’t care. Their job is to produce a certain type of figure…which a certain type of government then releases to a certain type of voter…who in turn elects a certain type of politician in search of a certain type of number.

This is, apparently, what the majority wants and, as Bill noted in today’s essay on Monarchs, the Masses and Democratic Mayhem: “Whatever the majority wants, it gets.”


Joel Bowman
for The Daily Reckoning Australia

From the Archives…

Staring Down the Barrel of Bad Debt
17-08-2012 – Greg Canavan

Taking Over From the US Dollar With Organic Finance
16-08-2012 – Greg Canavan

Australian Banks on the Run
15-08-2012 – Bill Bonner

The Secret Investment to Buy When GDP Falls
14-08-2012 – Nick Hubble

Will the Latest Data From China Cause a Rally in Aussie Stocks?
13-08-2012 – Dan Denning

Joel Bowman
Joel Bowman is managing editor of The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.

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