Smooth Irish bailout exit bodes well for Portugal?

Smooth Irish bailout exit bodes well for Portugal?

In a week when Ireland made history for being the first European country to exit a bailout programme, Europe’s focus has turned to Portugal. The big question is: can this country hope for the same kind of withdrawal from three years of fiscal bludgeoning – unfettered by secondary conditions from Brussels?

Only last week, IMF director general Christine Lagarde admitted the troika had “made mistakes” over the effects of its austerity programmes on Europe’s poorest countries. With the coalition government’s new budget for 2014 set to hammer citizens further, can Portugal really get to its June end-of-bailout-date without needing further assistance?

If you choose to believe the Bank of Portugal, you could be very optimistic indeed. In an opinion article in Económico Digital, the bank’s Agostinho Leal Alves from the department of economic studies and finance points to a “tranquil transition” and “lots of information for a positive dynamic”.

The expert refers to the growth of GDP for the second consecutive period, buoyant estimates that this growth will continue into 2014 and actually “accelerate” in 2015; the end of the “technical recession”, positive exports, and an upbeat assessment by Moody’s ratings agency which has raised Portugal’s credit position from negative to stable.

It’s a “real evolution” with “favourable expectations for economic activity” in Portugal, says Alves, echoing declarations emanating from government circles.
But if you shift your attention towards an economist who has been known to advise European Commission President José Manuel Barroso, you will hear a very different story.

Speaking to Chinese news agency Xinhua, Professor Paul de Grauwe of the London School of Economics says that Portugal is unlikely to make a clean exit from its bailout programme, and that its austerity push is masochistic.

He labelled the positive forecasts coming from the government and Bank of Portugal as being “far too optimistic”, and told his interviewer: “I don’t know, maybe some politics going on there.”

“Portugal’s debt levels are now becoming unsustainable,” he continued. “The country pretty much still has zero growth, and zero growth isn’t going to solve the problem.”

If the government “intends to do what it announced” in its 2014 state budget, de Grauwe warned: “I doubt it will recover.”

The economist’s opinion – given to the Chinese in the wake of a gung-ho state visit to the Orient from Deputy Prime Minister Paulo Portas – will have done nothing to strengthen the coalition government’s message that “it is time to invest in Portugal”.

Meantime, the country’s Socialist party has said that after all the government’s positive predictions it would be “unthinkable” for Portugal to exit its bailout programme in June with anything other than a clean bill of health.

And to crank tension up even further, the troika – back in Lisbon last week for the 10th assessment of the country’s austerity measures – has warned that “the end of the programme does not mean the end of adjustment”.