As befits a seafaring nation, officials in Portugal are striving to dock the ship before the tide recedes. Two events on Tuesday show the results. A €6.6bn debt swap extends some maturities and offers repayment relief. And the price of an initial public offering of its postal service has been set at the highest advertised level, raising €600m. Both will help Portugal in its aim next year to exit the bailout provided by a troika of lenders – the EU, the European Central Bank and the International Monetary Fund. But Portugal should not be rushing into self-sufficiency so soon.
Portugal entered its €78bn bailout in the middle of 2011, a few months after Ireland received nearly €70bn. The Irish will exit in a few days, to applause (some of it, perhaps, one-handed). Since 2010 Ireland’s borrowing costs have fallen sharply – 10-year money can be had for 3.5 per cent, down from double-digit levels. The Irish economy is growing, its treasury is reasonably financed and even the housing market appears to be recovering.
Portugal’s position is weaker. Its economy and public finances are improving but are not making much dent in its debt dynamics, which are worse than Ireland’s. In 2014 and 2015, Portugal needs to refinance the equivalent of 42 per cent of gross domestic product, according to the IMF. This week’s debt swap will reduce that only slightly. Its 10-year bond yield is nearly 6 per cent (though it can borrow more cheaply from eurozone institutions set up for that purpose).
Investors are nervous about further political setbacks to the bailout process. Portuguese stocks’ underperformance is, in part, a reflection of this. They are up 15 per cent this year but are still well below the level of mid-2011. Irish stocks, by contrast, are up two-thirds over the life of its bailout. There has been some structural reform since 2011 but Portugal squandered its first decade in the euro and has a lot more ground to make up. Extending debt maturities is important. But that is the easy bit.
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