The Portuguese Debt Crisis

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Wiley 1
Ben Wiley
Goggin
World Literature
24 February 2014
The Portuguese Crisis: Contributing Factors and Relief Methods
Since the eurozone crisis of 2008, Portugal has found itself in a curious predicament:
strong itself to hang on to life but nowhere near strong enough to bring itself off the cliff. The
reliance of European Union nations on structural lending, a system favored by the International
Monetary Fund in which certain policy conditions, like increased privatization of state
enterprises and stimulation of exports, accompany favorable rates, was a clear factor of the crisis
that led to Portugal‟s economic recession. The economic recession has been exacerbated by an
impractical constitution, corruption, and a downgrade in sovereign debt rating. In order to
combat the recession and its attendant issues, Portugal has issued austerity measures, issued
bonds to the international market, and is looking forward to a new election cycle to get fresh
ideas into its government.
Due to Portugal‟s use of the European Union‟s currency, the euro, the eurozone crisis of
2008, caused largely by risky structural borrowing, caused the Iberian nation to spiral into a deep
recession from which little economic progress has been made due to a slow moving legislature
embattled with outdated laws. In 2010, ineffective attempts to stabilize a slight dip in their
economy ultimately led to a far worse situation as Portugal hit a new low after Moody‟s, the
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international sovereign debt analysis agency, downgraded Portugal‟s rating by two notches from
AA2 to AA1. As the BBC points out, “A sovereign debt downgrade tends to make it more
expensive for a government to raise money on the international markets.” (Moody‟s
Downgrades). As the industry standard for sovereign debt analysis, Moody‟s rankings carry a
hefty value. Moody‟s reevaluation of Portugal has been a major hurdle in the way of its
economic recovery with regards to the staggering national debt. Another fundamental issue in the
way of resolving Portugal‟s debt crisis is its hastily assembled Constitution, adopted after the
anti-fascist Carnation Revolution of 1976. The Constitution has been commonly cited as too
dogmatic and severely restricting economically. Created by zealous radicals, it requires a
Constitutional Court to review all new federal legislation to ensure their constitutionality. The
Constitutional Court has “…recently handed down rulings that have forced the government to
rejig its fiscal consolidation.” (Barley). Thus, much of the Portuguese legislature‟s proposals to
lift their country out of debt through movement towards more economic freedom have been
declared unconstitutional in accordance with the starkly socialist Constitution. Furthermore,
Portugal‟s notoriously corrupt government and its „underground economy‟ have led to slow
changes when speed is of the essence. According to a Gallup poll, 88% of Portuguese citizens
believe government kickbacks and corruption are hindering their country (Machlin). This
pervasive corruption, along with the fact that one-fifth of Portugal‟s GBP is contained in an
„underground economy‟ that does not contribute to the international market, has led to extremely
slow recovery and a lack of faith in the Portuguese government. When taken together the issues
of corruption, an overwhelmingly ideological constitution, and a poor international standing

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regarding sovereign debt, have compounded on top of one another leading to a seemingly
insurmountable goal for the Portuguese to face in the years to come.
Although, in an attempt to bolster their economy, the Portuguese government has placed
itself under austerity measures and has issued 12-month and 10-year bonds, the Portuguese
populace has lost faith in its government and sees electing new officials as the only true means to
reform. Along with Ireland, Portugal has begun a comprehensive plan to raise capital with 12-
month bills and 10-year bonds. In the first week of February 2014 alone, Portugal raised 3.25
billion euros of 10-year notes through international banks. Along with its 10-year notes, Portugal
has sold 1.01 billion euros of 12-month bills this year (Lima). In order to counteract the failure of
their International Monetary Fund backed, 78 billion euro bailout, Portugal‟s government has
issued strict austerity measures in order to keep the national budget at a minimum. The
government hopes that these measures will, acting alongside their newly issued bonds, give the
economy a strong base to grow off of from here forward (Machlin). Unfortunately, these same
austerity measures have led to increased poverty among the Portuguese populace, with as much
19% of Portuguese adults not having sufficient funds to provide “adequate shelter” for their
dependents. This has lead most citizens to view the coming election cycle as the only definitive
way to ensure lasting economic reform in their nation. European Union leaders have urged
Portuguese citizens to comply with the austerity measures, which they have seen success with in
Ireland, but the growing tide of social unrest is threatening to dispel any positive effects the
measures may have occurred (Machlin). In the struggle to pull itself out of the economic deep-
end, the Portuguese government and the nation‟s citizens are sadly pulling in different directions
leading to little progress at this juncture.
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To save itself from the abyss of national bankruptcy, the path of Greece, Portugal must
find a more agreeable plan between the general population and its politicians and economists.
Unlike Ireland, whose bailout went smoothly on account of its population having taken austerity
measures with a stiff upper lip, the Portuguese are restless and do not like the Sword of
Damocles that is poverty and hunger that is threatening from just above and perhaps rightfully
so. As Americans lose faith in the search for a bipartisan solution to our economic issues we
must look east to Europe with its far left failings and death-throe nations and realize what one
party dominated nations come to and although the left may be the correct path for America we
must remember that moderation triumphs of radicalism in the long run. As ever we must take the
pulse of the world as a whole to help us make informed decisions in our own lives with regards
to politics and economics and the coming election cycle in the United States, something that
examining the Portuguese debt crisis of recent years has done for this writer.







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Works Cited
Barley, Richard. "Portugal's Looming Market Test." The Wall Street Journal. Dow Jones &
Company, 11 Dec. 2013. Web. 24 Feb. 2014.
"Eurozone Crisis Explained." BBC News. BBC, 19 June 2012. Web. 24 Feb. 2014.
Lima, Joao, and Anabela Reis. "Portugal's Yields Drop to Four-Year Low as Euro Rally Builds."
Bloomberg.com. Bloomberg, 15 Jan. 2014. Web. 24 Feb. 2014.
Machlin, Anna. "Economic Hardship, Political Discontent Surge in Portugal." Gallup. N.p., 29
Oct. 2013. Web. 24 Feb. 2014.
Minder, Raphael. "New Trouble for Euro in Portugal." The New York Times. The New York
Times, 07 Apr. 2013. Web. 24 Feb. 2014.
"Moody's Downgrades Portugal Debt." BBC News. BBC, 13 July 2010. Web. 24 Feb. 2014.
Port, Len. "Portuguese Government One of the Most Corrupt." Portuguese American Journal.
N.p., 25 Oct. 2013. Web. 24 Feb. 2014.

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