Global perspectives: how to fix Portugal
Angela Merkel recently offered Portugal a beacon of hope by saying it wouldn’t require a second bailout. We asked some of the country’s leading fund selectors if they shared this optimism and how they feel the crisis should be addressed.
by Jesus Segarra Sobral on Dec 18, 2012 at 07:30
Portugal was the third member of the eurozone to obtain a bailout. Some argue that the €78 billion package won’t be enough, but, in her visit to Lisbon in November, German chancellor Angela Merkel said a second bailout wouldn’t be necessary.
Portugal is the poorest country in Western Europe and one of the least educated within the OECD. Corruption is a serious concern and 97% of respondents from a recent survey saw it as a major problem for their country.
Portugal’s crisis, in contrast to those of the Republic of Ireland and Greece, has come to a slow boil that many observers put down to a lack of competitiveness and economic growth. Here, three Portuguese fund selectors share their opinions on what went wrong with their country and how the damage can be fixed.
José Eduardo Bonito, Eurovida – Companhia de Seguros de Vida
‘The Portuguese economy has stalled, mainly because of its investments in non-productive activities, supported by easy access to cheap credit. To make things worse, the globalisation of markets and the strengthening of emerging countries with low-cost labour and high levels of production weakened developed markets’ competitiveness.
'Last but not least, our entry into the European Union and the adoption of the euro made it difficult for Portugal and other European countries to develop in a long-term sustainable way.
‘Of course, there are no free lunches; we have to pay our debts, but we need time to recalibrate the state’s balance sheet as our problems are mainly structural. We can’t solve decades of economic structural problems in three years (the Troika deadline).
‘We need to achieve a balance between growth and austerity, because we can’t pay our debts without a growing economy. Portugal needs to rebuild its enterprising drive and domestic demand.
'In order to do that we should: implement short-term measures, such as restoring credit to productive sectors like export companies; foster private investment in productive enterprises; relieve taxes on export companies and external investment; and boost domestic demand.’
Paulo Joaquim Farinha Gonçalves, Banco Popular Gestão de Activos
‘Our country’s problem has been the slow growth of the economy over the last decade together with the growth of public spending which eventually became uncontrollable.
'Politicians thought that public debt didn’t need to be repaid, but instead helped to boost the growth rate. At the same time borrowing costs were very cheap for peripheral countries, at almost the same rates as the core countries, because the perception of similar risk among the eurozone’s constituents implied solidarity.