Wednesday, May 4, 2011

Portugal's Bailout Has Holes

By Grant de Graf

Portugal has reached a bailout deal with the EU and IMF for €78 billion. The package is a three year plan and under the guidelines, the country will have to reach a budget deficit of 5.9% of its gross domestic product this year, 4.5% in 2012, and 3% in 2013. This is a far too aggressive timeline and given the circumstances of the economic slowdown, the country is setting itself up for disaster and a potential default. I'm surprised that the IMF and the EU could agree to such terms, especially in light of the Greek tragedy, which is still unfolding and may not have reached its climax.

Secondly, according to Mr. Sócrates, the acting Prime Minister of Portugal until the elections in June 2011, the deal will not include cuts in the minimum wage or in public-sector jobs, measures Ireland and Greece were forced to take. Employees will still receive the extra 13th and 14th months of salary. I'm not running for prime minister, so its easy for me to say, but in the case of smart austerity, workers need to take cuts. We're not asking for layoffs, just simply some belt-tightening, which under the circumstances would be very gentlemanly.

The good news is that there is a plan on the table and officials are working towards a solution, which appears attainable.

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