Portugal is breathing a faint sigh of relief after raising over $1.5 billion in its yearly bond auction. However, it has come at a price, with investors demanding high interest rates for risking their money in the debt-strained country.
The move is being seen as a test of whether Portugal will need a Eurozone bailout like its struggling currency partners Greece and Ireland.According to a political scientist from Berlin University, Markus Kerber, Portugal’s problems cannot be solved by any new bailouts.”The competitiveness of the Portuguese economy is the core problem – it is the fundamental problem – so this is the problem we cannot solve by new bailouts, by funding Portugal,” he said. ”The problem of Portugal is that during ten years of membership within the European Monetary Union, the economy has not increased its competitiveness, but on the contrary, they have lost competitiveness. Today, Portugal is totally trapped by the situation.””If Portugal were not in the monetary union, the country would simply devaluate, they would operate what we call a competitive devaluation in order to gain some time,” Kerber added. ”With the current parity of [the] euro, it is almost impossible for Portugal to put the country again on the path of growth, although [the] signals are not too bad.”