Portugal Heading For Trouble

Portuguese Government Survives No-Confidence Vote – WSJ.com.

The Conservative Portuguese government comfortably survived a no-confidence vote brought by the socialists, 131 to 97, in a challenge to Portugal’s austerity program.

The Socialists had promised to renegotiate the country’s bailout if the no-confidence vote had been successful, but it had little chance from the get-go.  The opposition party’s true purpose is to position itself for the future.

To counter the vote, the government had promised the people that all of this austerity will lead to Portugal regaining its financial independence and be able to access bond markets next year.  If it is unable to deliver, the Socialists will be able to call another no-confidence vote with a much firmer basis.

Austerity also is being litigated in the country’s highest court by Portugal’s president.  The basis of the lawsuit is unfairness to pensioners and government workers, which is a weak constitutional case.  Since the euro crisis began, not one constitutional challenge to austerity in any of the crisis countries has prevailed.  It won’t this time either; austerity should be upheld by the court.

All of this political intrigue is not as important as the numbers.  Portuguese economic data is frightening, and the country will probably require more assistance at some point.  Unemployment is at record highs and trending upward:

Portuguese Unemployment Rate

No relief is in sight as GDP continues to fall due to the lack of demand in both Portugal and Spain, its largest trading partner:

Portuguese GDP Contraction

With decreasing GDP and employment, the budget deficit will grow from 2012’s 6.4%.  In light of these numbers, Portugal will more likely encounter a bail-in next year rather than a return to international bond markets.


4 thoughts on “Portugal Heading For Trouble

  1. Pingback: Portugal a caminho de problemas | Marco Sentido

  2. The weak constitutional case was not that weak, it seems…. large parts of the austerity budget have been deemed unconstitional by the highest court.

    Having stayed in Lisbon, Portugal two weeks ago, I cannot say, though, that the effects of austerity were obvious to an untrained eye. Shops and restaurants were full, streets and metro stations in a much better state than in the capital of Germany. Only thing I can complain about was the weather – it was raining every day.

    • I was really surprised that the court overturned those laws. There was an emergency cabinet meeting today, so there should be a proposal to make up for those lost cuts soon.

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