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Interview: Portugal unlikely to make clean exit from bailout program next year: economist

English.news.cn   2013-12-14 06:53:09            

LISBON, Dec. 13 (Xinhua) -- Portugal is unlikely to make a clean exit from its bailout program scheduled for mid next year and its austerity push is "masochistic", a leading economist told Xinhua in a recent interview.

Although Portugal's tough austerity is intended to avert a need of a second bailout, the country's debt levels are now becoming unsustainable, said Paul de Grauwe, economist at London School of Economics and adviser to European Commission President Jose Manuel Barroso.

AUSTERITY PAGEANT

"Austerity is a masochistic policy which has contributed to mass unemployment," de Grauwe said.

Portugal has been implementing a painful 78-billion-euro (about 107 billion U.S. dollars) bailout plan with the troika of the European Commission, the International Monetary Fund and the European Central Bank since May 2011. The country also adopted a strict draft budget for 2014, meaning more spending cuts and tax hikes to save some 3.9 billion euros.

Although Portugal's tough austerity is intended to avert a need of a second bailout, de Grauwe said austerity has been counterproductive.

"Portugal certainly shouldn't have applied austerity with that intensity and that speed," he said, adding "Portugal's debt levels are now becoming unsustainable."

"There is no reason why one should apply so much austerity. It contributed to mass unemployment. It was a masochistic policy," he said.

PORTUGAL'S ZERO GROWTH

"The country still has pretty much zero growth," said de Grauwe."Zero growth isn't going to solve your problem."

Portugal will be heading to the debt markets in 2014 and its successful 6.6-billion-euro swap of Portuguese government bonds for longer maturities were an important test of investor confidence. The country's gross domestic product (GDP) has expanded and stronger exports have pulled the country out of recession.

"The first thing the government does is to go on producing austerity, which will continue to keep the Portuguese economy of very low growth and make it difficult to reduce the debt level," de Grauwe said.

He doubts Portugal will make its way out of the bailout next year. "It depends on how the eurozone evolves. But the outlook is that although negative growth next year may not occur, the growth rates will be so low one cannot expect much relief."

PORTUGAL NEEDS RESTRUCTING

"The challenge next year will be how to deal with the debt, and think at some point the Portuguese government will have to accept that some debt restructuring will be necessary," de Grauwe said.

He warned that the Portuguese government is "far too optimistic".

"The government is continuing with this extreme austerity and as far as I can see it will have the effect of keeping the growth of private consumption very low," he said.

He also thinks the Bank of Portugal's projections this week were too optimistic. On Tuesday the central bank revised upward growth forecasts for the domestic economy, forecasting a 0.8-percent growth in 2014, up from an estimated 0.3 percent in its fall forecasts.

The bank also said it expected Portugal's economy to contract by 1.5 percent this year, compared with a previous estimate for a decline of 1.6 percent. The country's GDP growth will go up to 1.3 percent in 2015, the bank said.

"I don't know, maybe some politics going on there," said de Grauwe. "But if the government intends to do what it announced, I doubt it will recover."

However, the troika representatives have told lawmakers of Portugal's Social Democratic Party that they believe the bailedout country will exit from the bailout program in June 2014 when it expires.

Meanwhile, the troika stressed that "the end of the program doesn't mean the end of adjustment."

The PSD MPs met with troika representatives on Thursday in parliament during their current 10th evaluation over Portugal's implementation of the bailout program.

Editor: yan
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