This is the headline of a new article by the Financial Times journalist Peter Wise, who works from Lisbon, and who pours cold water on assertions by Portugal’s leaders that the country is fit enough to weather an eventual Greek exit from the eurozone.
“In the eyes of international lenders, Portugal is a shining example of what Greece should have been,” he explains. “A bailed-out country that co-operates with its creditors, stoically enduring years of austerity to bring about reforms that gradually improve an ailing economy.
“But Lisbon’s status as a eurozone posterchild – cited as ‘proof’ that adjustment programmes work by Germany’s hawkish finance minister Wolfgang Schäuble – would not be enough to shield it from the full blast of market turbulence if Greece exits the currency bloc.”
No matter the welter of assurances to the contrary from political heavyweights, Portugal remains “the weakest link in the eurozone” according to risk consultancy Eurasia Group – while elsewhere market analyst Lyn Graham-Taylor of Rabobank confirmed: “Portugal is regarded as the riskiest credit in Europe after Greece”.
In conversion with Eurasia’s Antonio Roldan Mones, who focuses on Spain and Portugal, Wise stresses that “Lisbon’s borrowing costs last week hit their highest point this year as tensions between Athens and its creditors increased.
Swiss bank UBS forecasts that borrowing costs could double if Greece leaves the euro, putting renewed pressure on Portugal’s still fragile public finances”.
Granted, the coalition government – backed by President Cavaco Silva – has been at pains to paint a very different picture.
“As Maria Luís Albuquerque, finance minister, put it: “The coffers are full,” writes Wise.
But “others are more sceptical”, including former finance minister under the previous Socialist government Fernando Teixeira dos Santos, whose opinion is that Portugal could not “withstand a prolonged trial of strength with the markets”.
The cash buffer Portugal’s leaders have alluded to “would cover public financing needs for some months, but the private and banking sectors would also be hit hard”, he told Wise.
“It’s a film I have seen before.”
While there are real signs that Portugal is on the road to recovery, the country “remains one of Europe’s most indebted nations, with public debt equal to 130% of national output”, Wise continues.
The IMF recently concluded that Portugal’s economic recovery “remained fragile due to large public and corporate debt, high unemployment and a weak banking sector”.
As Rabobank’s fixed income strategist Lyn Graham-Taylor added, Portugal “doesn’t have the economic power of other indebted countries like Italy”.
Thus as the country limbers up for its autumn general election, the Greek drama is adding further edge to a campaign that is in itself a huge uncertainty.
“Following four years of punishing spending cuts and tax increases, which fed into Portugal’s worse recession in 40 years, fuelling record unemployment and a wave of emigration” the anti-austerity Socialists were hoping they would be “enjoying a commanding lead” by now, Wise concludes. But this is not the case at all.
As Lisbon politics professor António Pinto Costa told him, “three months from the election, the uncertainty of the outcome is increasing”.