But this is not Greece …

By Raoul Ruiz Martinez [email protected]

Raoul Ruiz Martinez is a consultant for Finesco Financial Services Ltd., Glasgow and regulated to advise on capital investments in both the UK and throughout Europe under the MiFID regulation.

… many have said as a recent mantra in relation to Portugal’s financial position in Europe over the last few months.

Factually, the public debt as a percentage of gross domestic product is less than Greece’s but no comment has been made on the collection of taxes in either of these countries.

Portugal has a greater number of golf courses along its coastline which could be its saving grace in attracting affluence to its shores since it will have to demonstrate an expansion in its export sector to increase its gross domestic product.

As the crisis in public finances escalated across Europe, Portugal must now adopt the old sporting adage “no pain, no gain”.

Before 2000, low interest rates and low inflation started a boom with a stable and premium global currency fuelled by lower transaction costs

as borders within the union were relaxed.

Portugal made good gains and, like its European brethren, as part of the single currency they benefited from a shelter against foreign currency exchange risk during the 2007 crisis. 

The downside was that this created a false economy.

Although Portugal is better off than Greece from a fiscal perspective, the government deficit came close to 10 per cent of GDP last year.

In turn, government debt as a percentage of GDP was just shy of 80 per cent. Along with other national and international accounting statistics, it was unclear whether Portugal would have the depth to stimulate growth to bring its finances in line again.

Portugal was not the only country booming during this period and, in reflection, it has become less competitive as labour costs have increased (a strong indicator of inflation during a boom) by 19 per cent which was not far behind Greece who saw 22 per cent.

In an attempt to calm financial markets in May of this year, ECB president Jean-Claude Trichet commented that Greece and Portugal were not in the same boat.

However, within 24 hours, he was stating that the crisis had spread outside of Greece. This was followed by the announcement of the 750bn Euros  stabilisation plan.

Back at home, and almost immediately after this event, José Sócrates announced further austerity measures, focusing on a “crisis tax” on wages for employees and employers.

Already most employees are in effect seeing their wages already reduced by around 5%.

Like everywhere else, Portugal has a tough hill to climb but it is the resilience and foresight with which they approach this.

Without doubt, the currently small export business sector must grow or leaving the Eurozone could possibly become more of a realistic option according to some analysts.

However, with the size of export sector comparable to that of the emerging markets, to be competitive they may have to consider further reductions in wages which could lead to a long, hard winter of a recession.

Portugal is a key player to the EU but moving forward terms and conditions will have to be different.

Like every downturn, you have to be realistic and take constructive criticism with a pinch of external and unbiased opinion.

Durão Barroso and Vitor Constâncio are doing it so maybe Portugal can bring in some external advice and opinion for the good of the country during times like these.

Finesco Financial Services Ltd is authorised and regulated by the Financial Services Authority (FSA). Some of the services provided are not regulated by the FSA because they are not included within the Financial Services and Markets Act 2000. He can be contacted at the offices of euroFINESCOs.a. either by telephone on 289 561 333 or on email [email protected]