Sunday 11 December 2016

The final, bitter cost of austerity is yet to play out here

Published 20/05/2014 | 02:30

A Portuguese national flag flies above the parliament building in Lisbon - Portugal hsa just exited its bailout programme
A Portuguese national flag flies above the parliament building in Lisbon - Portugal hsa just exited its bailout programme

What do Portugal and Ireland have in common? (Besides the weather, obviously). Well, since 2011 both countries have been in adjustment programmes mandated by the troika. Both Ireland and Portugal have exited the official funding part of their programmes, neither with precautionary credit lines, and with their government bonds trading at pre-crisis yields.

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Like Ireland, Portugal has imposed substantial austerity on its 10 million people, borrowed roughly €78bn from the EU and IMF once it was shut out of the bond markets in 2011, and has very high household, corporate, and public debt levels. Public debt in Portugal is nearly 130pc of national output, which is very, very high by international standards but projected to fall over the next few years.

The point of imposing austerity is to allow international funders to regain confidence in the economy, and to curb the increase in government debt levels in the process.

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