Is Portugal Next?

Is Portugal Next?

The PIGS nations aren't out of the woods yet--all eyes are on Portugal as the next to fall.

Bond contagion is a funny little phrase, not so much "ha-ha" funny as "hundred thousand volt joy buzzer" funny. It's the primary impetus behind the PIGS (or SUKPIG, if you're a long-time reader here) theory, and basically says, where one nation in the chain of four or as many as six goes, so goes the rest.

We've seen some validation of that by going from Greece to Portugal, who's now got a serious problem on its hands. Greece got its bailout package, even if the Germans wouldn't stop muttering blackly to themselves and anyone who'd listen the whole time. But now, the more solvent members of the European Community are looking at everybody's books to see who might be next in the chain of damage, and Portugal is taking center stage.

Admittedly, Portugal is nowhere near as deep in debt as Greece was. Portugal's total debt load comes to about seventy seven percent of its annual total earnings, and in terms of sovereign debt, most creditors only start freaking out of if a country owes more than a hundred percent of a year's GDP. This may sound backward to folks like us, who've been known to take out mortgages that are equivalent to five or six years' total salary, but in terms of sovereign debt the old saying applies; If I owe the bank a hundred thousand dollars, I'm in trouble. If I owe the bank a hundred MILLION dollars, the BANK'S in trouble.

But the big trouble in the Portuguese market isn't so much debt as it is future growth, a prospect that looks distinctly limited for the foreseeable future, especially without the help of debt to finance growth projects.

Thus, the Portuguese are looking to slash spending--often called "austerity measures"--so they can get the cash on hand to fuel growth projects like infrastructure spending. But there are those who think that the Portuguese plan will merely sink Portugal in more debt without boosting the economy.

It's strictly conjecture at this stage of the game, but it doesn't exactly look good for the Portuguese, whose debt might well be next to superinflate ahead of a possible bailout.

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