Tuesday, April 20, 2010

On Portugal

Engaging Finance Hat...

Much fuss has been made about Greece being bailed out recently, and rightly so. Bailing out a country whose national pasttime is tax evasion, in which "95 percent of taxpayers declare annual income of less than 30,000 euros", is a lunacy. However, Greece is the least of our worries.

Portugal may well be the next shoe to drop. The Portuguese entered the Euro at too high a rate, and this has shafted them well and truly. They are also a poster child for the impact of the economic largesse of the EU on a previously relatively well-run country. As the Telegraph article points out, Portugal was run much better than the UK in recent years, and yet they have drifted into crisis due to the pain of maintaining an overvalued Euro and an explosion of private debt.

The most disturbing issue here is that the IMF probably can't bail out Portugal, a much larger economy than Greece. If Portugal falls, there may be major pain in Europe, and a Euro break-up would look very likely indeed.

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