Portugal “very dependent on Draghi’s successor and ill-prepared for new crisis” say economists

With the man himself leaving the driving seat at the European Central Bank saying Portugal is on the right path, economists have been giving a rather different take to State news agency Lusa.

First, perhaps, should be the ‘good news’: President Marcelo awarded outgoing ECB president Mario Draghi with the Grande Order of the Infante during the ECB forum in Sintra on Wednesday, saying the economist’s eight year mandate – in which Draghi is credited for having ‘saved the euro’ – was ‘fantastic’.

Draghi returned the compliment by saying Portugal is now “solidly on the path for growth and continued prosperity”.

But is it? Economists have been giving Lusa a rather different picture.

Joaquim Miranda Sarmento, professor of finance at the Lisbon School of Economics and Management, considers the country is still “very fragile” in terms of facing any new economic crises.

As no-one knows yet who will follow Draghi – or whether his successor can be as ‘accomplished’ at side-stepping potential economic dramas – the future is looking uncertain.

More to the point, perhaps, is that in some economists’ minds Draghi’s stimuli are unsustainable.

Said Ricardo Reis, professor at the London School of Economics, “as a small heavily-indebted economy, Portugal depends hugely on the performance of interest rates fixed by the ECB in two forms”: first for the effect they have on the capacity to finance debt, and second “because a recession in the rest of the eurozone – the large market for our exports – would rapidly spread to our economy”.

Reis and Sarmento’s reservations have been echoed by other colleagues who all affirm “it will be very difficult for any successor of Draghi to pull a new rabbit out of the hat”.

In the wider picture, US president Trump has already reacted badly to Draghi’s assertions in Sintra (for the last forum of his mandate) that “additional stimulus will be required” to help the eurozone withstand looming economic challenges.

The speech caused the euro to decline sharply against the dollar, in Mr Trump’s eyes: “making it unfairly easier for them (eurozone economies) to compete against the USA.”

Mario Draghi’s years at the helm of the ECB will officially close on October 31 (coincidentally the latest Brexit deadline). Names most referenced as possible successors include the Governor of the Bank of France Benoît Coeuré, the Governor of the Bank of Finland Olli Rehn, his predecessor Erkki Liikanen and president of Germany’s central bank Jens Weidmann.

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