Portugal’s debt 'is not sustainable without decades of austerity'

Portugal's Head of State, Cavaco Silva, has sent a warning to Portugal’s political elite and the Portuguese people that in order to reduce the current debt ratio, an effort over ‘several years’ will be necessary.

Cavaco Silva has put his thoughts on paper in a dour and gloomy prognosis for Portugal’s economy in an attempt to engineer a consensus of leading political parties so as to please foreign lenders.

"Assuming an annual growth in output of 4% and an interest rate on public debt of 4% this would require an annual primary surplus of around 3% per cent of GDP to deduce the debt ration to a target of 60%. In 2014 it is expected that the primary surplus will be 0.3% of GDP."

In simple language the Head of State is calling for the austerity measures to continue for many years, Cavaco Silva wants parties to cooperate to ensure this happens.

The forecasts of the International Monetary Fund and the European Commission point to a primary surplus that is expected to continue to grow and exceed 3% of GDP in 2018. If this level is maintained, it will reduce the debt if interest rates and GDP growth remain unchanged.

The problem is of course that a primary surplus above 3% is something that Portugal has only managed once since 1977, in 1992 when it reached 3.5%.

Cavaco Silva’s analysis is dire, but the state of the country is dire despite politicians grasping at good news items of marginal increases in output and exports.

The state has failed to reduce expenditure and state employment levels on anywhere near the scale promised while taxing the population which has served to depress domestic demand and has left 2 million facing court action for recovery of debts to the government.

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