Posts Tagged ‘Portugal’


House prices might be rising in the UK, but that is not what’s happening across most of Europe.

According to new data from the EU Commission, house prices across the Eurozone fell 2.2 per cent year on year in the first quarter of this year. Across the EU they fell 1.4 per cent.

Among the Member States for which data are available, the highest annual increases in house prices in the first quarter of 2013 were recorded in Estonia (+7.7 per cent), Latvia (+7.2 per cent), Luxembourg (+4.3 per cent), and Sweden (+4.1 per cent), and the largest falls were seen in Spain (-12.8 per cent), Hungary (-9.3 per cent), Portugal (-7.3 per cent), and the Netherlands (-7.2 per cent).

In France they were down 1.4 per cent. They fell 5.7 per cent in Italy, 3.0 per cent in Ireland, and 0.4 per cent in Cyprus.

The latest data for Germany is not yet available, but in Q2 2012 they rose 2.3 per cent, year on year.

According to recent OECD data, when comparing average house prices to rent, they are 71 per cent above the historic average in Norway, 64 per cent more than average in Canada, 63 per cent more in Belgium, 61 per cent in New Zealand, 38 per cent in Finland, 37 per cent in Australia, 35 per cent in France, 32 per cent in Sweden, and 31 per cent in the UK.

Prices to rent are below the historic average in the US, Japan, Germany, Italy, Czech Republic, Greece, Ireland, Iceland, Portugal, Slovak Republic, Slovenia and Switzerland. In the case of Japan, Germany, Greece, Ireland, Portugal and Slovenia they are less than 80 per cent of the average relative to rents.

© Investment & Business News 2013

Those who like to tint their spectacles with roses saw reason to cheer. The Eurozone economy appeared to be on the slow march to recovery. Oh boy it was slow, and the signs of recovery were subtle, but they were there. Then yesterday it began to look as if was all going to blow up.

There is a consensus across much of the euro area that pain just can’t be avoided; that recovery can only occur if first we have pain, then more pain, and then – just to be on the safe side – a bit more pain. But, or so goes the consensus, the people realise this; they are willing to make the sacrifices, and recovery will follow – just be patient and let hard work and fortitude carry the euro through.

Last year Stein Ringen, a sociology professor at Green Templeton College Oxford, penned a piece for the ‘FT’. He said: “Economists are no more likely always to agree than any other experts but there was a remarkable unanimity as the crisis unfolded: Europe was on the edge of the abyss; bold and rapid action was needed from strong governments.” But, in his bullish article, he added: “Against this storm stood a remarkable woman, Angela Merkel, insisting no quick fix was available. She has been proved right.” He then talked about how the solution turned out to be “steady work and steely brinkmanship.”

The article was written on March 27 last year. At that time there was a consensus across the euro area that predictions of doom had been disproved. There was one snag with the optimism of that time: subsequent events showed it to be ill-informed. In fact, the euro area has been in recession/depression ever since.

Then earlier this year, in another one of those ‘told you it would be all right’ type statements, José Manuel Barroso, president of the EU Commission, said: “[The] existential threat against the euro has essentially been overcome.” He concluded: “In 2013 the question won’t be if the euro will or will not implode.” Or take this piece in ‘Bloomberg’, written in January this year, Why Austerity Works and Stimulus Doesn’t

The author Anders Aslund said: “After five years of financial crisis, the European record in Northern Europe is sound, thanks to austerity, while Southern Europe is hurting because of half-hearted austerity or, worse, fiscal stimulus. The predominant Keynesian thinking has been tested, and it has failed spectacularly.”

So, was there evidence to back-up these claims? Was austerity working?

Of late there have been signs – small signs, but signs nonetheless – of improvement. Take Markit’s latest Purchasing Managers’ Indices (PMIs) for both manufacturing and services. The word high features prominently. For Ireland the composite PMI for June rose to a five month high; it hit a three month high for Germany; a 24 month high for Spain; a ten month high for France, and a 21 month high for Italy.

So that was encouraging.

Spanish manufacturing now appears to be out of recession, with the latest manufacturing PMI for Spain hitting 50 – a 26 month high – a score which is meant to be consistent with zero growth. Furthermore, recent trade data showed the first trade surplus for Spain in 40 years.

On the debt front, central government debt in Greece is well below target so far this year, and much better than during the corresponding period last year. Ireland appears to be on course to meet its targets for this year.

This is where the good news finishes, however.

Sure, Spain posted its first trade surplus in 40 years, but this was largely down to plummeting imports. In other words, the surplus was a symptom of economic depression. Sure the PMIs are looking better, but they still suggest the euro area is in recession – a very deep recession in some cases, including – by the way – France and Italy.

As for debt, total external debt (that’s public and private owed to creditors abroad) is 168 per cent of GDP in Spain, 200 per cent of GDP in Greece, 227 per cent in Portugal, and 410 per cent in Ireland.

Debt maturing in 2013 or 2014 in Greece equates to 21 per cent of GDP in Greece and Portugal, 23 per cent in Spain, and 32 per cent in Italy.

Unemployment, especially in Greece and Spain, remains at levels that can only really be called horrendous.

How can hard work save these countries when there isn’t the work for people to do?

But we now appear to be entering a new era; one in which monetary policy will slowly tighten. If the Fed raises interest rates in 2015, as it suggests, what will this mean for the euro area?

Bond yields soared in Portugal yesterday on the latest political uncertainty following the resignation of two government ministers. They also rose sharply in Greece, which is also facing a political challenge at the moment, after the Democratic Left pulled out of the Greek coalition following the closure of State TV, in another government attempt to reduce spending. Yields were up in Spain too.

The good news, albeit small comfort for many, is that Angela Merkel seems to have woken up to the plight of the euro area’s unemployed youth. Post German elections – assuming she wins that is – there is even a chance she will rein back on pressure for more austerity.

The truth is that austerity is not working. Sure parts of the economies across much of Europe need a radical overhaul, and indeed could do with some austerity measures. But other parts of the economy need stimulus, and they need big stimulus. Nothing short of a latter day Marshall Plan will do.

But the ECB has been a disaster – fretting over inflation when deflation was a bigger danger.

Maybe, the ECB will mend its ways, but the signs are not good. If the Fed tightens, the euro may come under pressure relative to the dollar, and in such an environment it is hard to imagine the ECB announcing quantitative easing, even if this is what the region needs.

Alas, thanks to policy errors, and an ill-founded sense of confidence – even a head in the sand mentality amongst many decision makers in the euro area – it is no longer the euro that faces a so-called existential threat, it is the EU itself, and that is tragic.

It is not too late to save the project, but only massive investment, perhaps funded by the ECB printing money, will do it.

© Investment & Business News 2013


The European commission is not happy. It turned out that the latest cuts it enforced on Portugal were not legal – according to the Portuguese Constitutional Court. Really Portugal, you must try harder than that.

Back in May 2011 Portugal asked for help. The European Commission, ECB and IMF, collectively known as the TROIKA, agreed a 78 billion euros bail-out, but only if in turn Portugal implemented some pretty severe cuts.

Of five billion euros worth of cuts agreed by Portugal’s government, the Constitutional Court has rejected around a fifth. The court didn’t much like the idea of cutting the pay and pensions of public sector workers, and rejected plans to tax unemployment subsidies.

Portugal’s Prime Minister Pedro Passos Coelho has said it’s a national emergency.

Portugal’s harsh Dickensian masters, The European Commission, said: “Any departure from the programme’s objectives, or their re-negotiation, would in fact neutralise the efforts already made and achieved by the Portuguese citizens.”

So what is Mr Coelho to do? He said that the money must he be found from elsewhere, probably meaning public sector cuts, less money spent on education, health and social security.
But how can Portugal cutting spending on education be good for the country in the long run?
It just goes to show that the belief held by the markets that the Eurozone crisis was near its end was based on some pretty some pretty optimistic readings of the data.

Actually forget about the data; there is more to it than that. There are people at the other end of Eurozone austerity, and right now the seeds for all kinds of social unrest are being sown.

Austerity can work when applied in isolation. But when it is applies across more than one continent, it looks like economic suicide.

©2013 Investment and Business News.

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“The lady doth protest too much, methinks,” said the Queen Gertrude to Hamlet. Maybe Uros Cufer, Slovenian finance minister, said something similar. He said “We do not have to go to the markets in these overheated times due to Cyprus…We can wait for the markets to calm down, for the investors to feel comfortable about our action and then we will tap the market.” Pressing home his point he also said: “We will need no bail-out this year….I am calm.” And just in case you are still in doubt he also said: “Slovenia cannot be compared to Cyprus. It is certainly not a tax haven… the basic problem of the banks in Slovenia is too much debt in companies and a lack of capital.”

Hamlet had tricked Queen Gertrude. He suspected she and his stepfather had colluded to murder Hamlet’s father. He staged a play to see how she would react to scene in which a woman promises her husband that if he died she would never remarry. Hamlet asked his mother what she thought of the play so far and she replied: “The lady doth protest too much, methinks.” In Elizabethan times the phrase actually meant: “I think the lady is promising too much.”

English lesson over. It matters not. Does Mr Cufer protest or promise too much? It boils down to much the same thing. The markets are fretful; they think Slovenia may be next. Whether next means next to the gallows, to the IMF, or to something else, is not clear.

In one sense though, Slovenia most certainly isn’t Cyprus, or Portugal, Greece, Spain, Italy or even France.

Slovenia’s gross government debt at the end of 2012 was around 52 per cent of GDP. Only three Eurozone countries had less debt. Its unemployment level in February was 9.7 per cent; that is high, but then again it is below the Eurozone average. Slovenia is different in one other way. It is exporting more than it is importing, and is expected to enjoy a current account surplus worth around 3 per cent of GDP this year. Across the euro area, only The Netherlands, Luxembourg and Germany are expected to see a better performance than that.

Slovenia’s problem is that its government debt is rising – the fiscal deficit has been around 5 per cent of GDP every year since 2009, and is forecast to fall only very slowly. Bank liabilities are more than 100 per cent of GDP (much less than Cyprus but still very high) and bank lending to households and business is around 85 per cent of GDP. The country is stuck in recession, and is likely to stay there this year.

Now some might look at those fundamentals and say Slovenia is a bit like the UK, only thanks to its trade surplus in some ways it is better off. It is just that the markets see the UK as a safe haven, and the government can borrow money so cheaply it is a wonder it doesn’t do so more often. In Slovenia bond yields are approaching levels that in the past and in other countries precipitated asking the IMF for help.

The markets are demanding austerity when what Slovenia needs is more demand. And that is why Mr Cufer may indeed be promising and protesting far too much.

©2013 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here