Up to Portugal to convince markets: ECB's Trichet
European Central Bank (ECB) President Jean-Claude Trichet waits to address the European Parliament Economic and Monetary Affairs Committee in Brussels February 7, 2011.
Credit: Reuters/Francois Lenoir
PARIS |
PARIS (Reuters) - Portugal must stick to its deficit reduction targets and implement more promised economic reforms to convince markets it is able to service its debt and does not need outside aid, European Union policymakers said on Saturday.
European Central Bank President Jean-Claude Trichet and EU Monetary Affairs Commissioner Olli Rehn, asked whether Portugal would be the next euro zone country to need an EU/IMF bailout after Greece and Ireland, said the ball was in Lisbon's court.
"We call on all governments, without any exception, first to apply the plan that they have ... as rigorously, convincingly and ethically as possibly, and they have themselves to be ahead of the curve in all respects," Trichet told a news conference after a meeting of G20 finance chiefs in Paris.
"This is a message again for Portugal, a very strong message for Portugal as well as for others. It is up to the countries themselves to be convincing in making their case to the market," he said.
Portuguese sovereign bond yields hit a euro lifetime high last week after disappointing growth figures pointed to the country sliding back into recession this year, prompting the ECB to intervene to buy bonds on Friday, according to traders.
Figures showing the economy shrank by 0.3 percent in the last quarter of 2010 cast doubt on whether Lisbon would be able to achieve promised deficit reductions in 2011.
The minority Socialist government has pledged to cut the budget deficit to 4.6 percent of gross domestic product this year from around 7 percent in 2010.
A euro zone source told Reuters on Thursday that EU states were increasingly concerned about Portugal's ability to fund itself in financial markets and believed Lisbon would need to seek a bailout by April.
READY TO HELP
Asked whether Lisbon should request assistance before a March EU summit, Rehn told the news conference: "It is essential that Portugal sticks to its fiscal targets ... Moreover, it is essential that Portugal will further substantiate the structural reforms that have been initially announced.
"It is a work in progress, and progress has been made."
European Commission President Jose Manuel Barroso, himself a former Portuguese prime minister, said in a BBC interview on Friday that the EU was ready to support Portugal if required, after the country made the necessary reforms.
Portuguese officials said this week it was up to Europe to resolve the sovereign debt crisis, arguing that if EU leaders agree on a convincing "comprehensive package" at the March 24-25 summit, that will help Portugal weather bond market pressure.
Treasury Secretary Timothy Geithner said EU leaders had made clear they would do whatever it takes to ensure euro zone states in financial distress would have access to financing as they implemented tough austerity and reform programs.
"We welcome the progress European officials are making to strengthen and redesign the financial mechanisms put in place to support economic reform," he said after the G20 session.
Trichet declined comment on an unexplained 15 billion euro spike in ECB emergency overnight lending this week.
A source in Ireland told Reuters on Saturday the glitch was due to bridging financing operations by troubled Anglo Irish Bank and Irish Nationwide Building Society as they seek a speedy sale of their deposit books.
(additional reporting by Toni Vorobyova; writing by Paul Taylor, editing by Mike Peacock)
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Portugal’s good side
There have been, recently, many worries in the financial markets, about Portugal’s financial situation.
This article intends at showing that not everything is as gloomy as it may seem.
As the country is a major source of market concern, an in-depth analysis of its macroeconomic indicators could shed some light on to whether the country remains a good target for investment, or not.
As such, in this article, a set of recent macroeconomic data, and some other factors, will be provided, which intend to show that Portugal is actually faring favourably economically, given the current crisis.
The different items will be itemised to make it more clear for the reader:
a) Yearly growth in 2010:
(data taken from Eurostat)
Greece -6.6%
Romania -0.5%
Spain 0.6%
Italy 1.3%
Portugal 1.4%
France 1.6%
UK 1.7%
Portugal – a good bet
Portuguese austerity measures are seen within the EU as “exemplary”. This has been stated by several Euro officials, and even by the OECD.
Regardless of whether the austerity measures DO stall growth in the country (which isn’t certain yet until the next Q results, the recent contraction could have been related to seasonal aspects), Portugal’s measures are pleasing its European peers.
Moreover, exports performed brilliantly in 2010, and economic growth was the highest in the Club Med, including Italy. Growth in 2010 was of 1.4%, better even than Governmental predictions.This gives Portugal some leverage in its dealings with EU officials.
Moreover a 1.4% growth in such hostile conditions should be taken into account in showing some resilience to austerity and harsh market conditions.
To top it up, most major Portuguese companies beat their profit benchmarks in 2010, and the banking system, long shut from the markets, has proven its resilience and is seen by most analysts as quite solid, especially in comparison with other frail economies within the Eurozone.
Some measures that have been taken recently seem to be showing some good results as well.
Portugal’s bet on renewable power was extremely successful. Portugal’s clean energy production now amounts to 40% of the total amount of energy produced in the country, a value only surpassed by Scandinavian countries. Portugal’s company EDP renovaveis, is a world leader in renewables, with investments in the US, Europe, and other parts of the globe.
Finally, Portugal is betting heavily on its connections with emerging markets, especially the ones with which it has strong cultural ties with. As noticed here:
http://english.peopledaily.com.cn/90001/90777/90852/7293110.html
Portugal maintains incredibly good relations with Brazil, China (mostly because of Macao), and Angola, all of them star performers in terms of economy – and it is largely accepted in these countries, as it is in Portugal, that trade between them should increase largely till it reaches its full potential.
Portugal IS the European gateway to Brazil already, quite literally, as TAP Portugal is the European company with most flights to Brazil. Brazilian companies have also been investing largely in Portugal, such as Embraer, Camargo Corrêa, Petrobras, and others.
A good investor should take this into account when thinking of investing in Portugal.
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