In an interview today with Económico, Chris Giles, the economics editor of the Financial Times commented that a restructuring of debt for Portugal seems inevitable given the high indebtedness of the country.
Giles said that the restructuring is not needed immediately but that the high level of debt of Portugal means that sooner or later deals will have to be done with the country's lenders.
Portugal has the second highest public debt of any country in the European Union measured by the debt to GDP ratio. Currently the debt for Portugal is way over 130% despite the high taxation of Portugal's shrinking taxpaying base..
Giles argues that the first step is that Portugal's slow economic reforms need to have been finished and seen to be working or any moves on debt renegotiation by the government will not be accepted by creditors.
Portugal’s parliament met today to discuss this very issue, among other pressing matters, and is looking at three models of debt renegotiation.
The British journalist believes that the most important thing that the Portuguese government can do is to demonstrate a willingness to continue to transform the economy and the state machine.
Giles argues that international financial trends will not make a voluntary restructuring easy, "remember how difficult it was in Greece" and that to accept any deal, lenders have to be convinced that this is the best solution for their income.
Chris Giles points to solutions that extends maturities and lowers interest rates and hinted that in this way a degree of debt pardon could covertly be achieved.
"It's the kind of stuff that eventually will have to be on the table, so it (debt pardon) is not seen as a direct fiscal transfer from creditors to debtors.... But on the other side the creditors realise that bad credit was granted. This situation was not only the fault of the debtor, it also was the fault of the lender," says the economics editor of the FT.
