Saving Portugal and Spain:The situation

For any successful attempt of solving a situation, it is important to make an overview of the problems that are there. And this is what I want to do in this post. I have gathered quite some data about Portugal and I believe that a lot of the problems are similar to the ones of Spain. As always please correct me if I'm wrong.

First an assessment of the situation right now. The government debt of Portugal is increasing at an alarming rate: depending on who's measures one uses it has reached over 100% of GDP already. In 2011 the deficit was around 6% (note that it may change because Eurostat hasn't published the official data yet) as also agreed in the bailout package with the Troika (EU,ECB, IMF). In general a government debt like this is unsustainable unless there is an economic boom or an unexpected increase in income. Both of which are unlikely.

This brings us to the second point: the Portuguese economy. For the last decade there hasn't been any real growth in GDP of Portugal. The Spanish GDP did experience a growth rate of about 3.5% but this is probably biased upwards due to the real estate boom in there. I believe that the reason for the low growth rate, mainly in Portugal, is the lack of innovative activity. Factories are closing instead of opening, and there is no adequate work for university graduates. In Spain the same situation seems to exist (If I have to believe the Dutch news stories).

Finally there is the problem nobody really wants to talk about: corruption. From what I have seen in Portugal this is not on lower levels (e.g. never seen corrupt police and I doubt that it would be accepted by the population). Rather, it is at higher levels of society. There are controversies surrounding the takeover of the bank BPN, there is operation face occulta, even the president Cavaco Silva has been accused of accepting bribes. At some point there was even an add campain by the Portuguese Licor Beirão making fun about how corrupt the government really was. The main point is that if even half of these stories are true it means that the most powerfull politicians are more busy getting rich and covering themselves than leading the country.

In the next post I will discuss more details about the situation in Portugal and Spain.