Make us your home page

Like Greece, feeble savings rate puts Portugal in debt trap

LONDON — Next target: Portugal.

Speculators have begun to zero in on another small member of the euro zone, highlighting the very same economic flaw that brought Greece to the verge of insolvency: a chronically low savings rate that presses both countries to rely on the now-diminishing appetite of foreign investors to finance persistent deficits.

Just as investors are turning their attention to the next vulnerable country, Greece moved a step closer Thursday to activating a $61 billion rescue package, as Prime Minister George A. Papandreou asked the European Commission and the International Monetary Fund for a meeting in Athens next week.

The rescue package agreed on last weekend — aimed at calming fears of a European country defaulting — has not yet had its desired effect. The yield on Greek 10-year bonds briefly spiked to more than 7.3 percent Thursday, not far from the 7.5 percent level before the rescue package was announced. Interest rates on 10-year government bonds for Portugal have also been jumpy, hitting a high of 4.5 percent Thursday.

A view is taking hold that instead of ushering in a period of lower rates and market calm, the Greek bailout could prompt investors to test Europe's — and in particular, Germany's — stomach for a Portuguese rescue.

That Greece and Portugal are among those in the worst trouble is well known, with both likely to be ensnared in a trap of stubbornly high debt, weak competitiveness and stagnant growth for years. Less remarked upon is that their savings rates — 6 percent of gross domestic product for Greece and 7.5 percent for Portugal — are the lowest by far among developed countries. By comparison, Italy has a savings rate of 17.5 percent, Spain 20 percent and France and Germany 19 percent and 23 percent, respectively.

For Athens and Lisbon, it is a toxic combination: low reserves of capital at a time that the cost of new debt is increasing, while their ability to generate tax revenue needed to pay for these obligations is shrinking because of tough austerity measures.

"Both Portugal and Greece are stuck in the trap of nominal GDP growth being lower than financing costs, and therefore have little prospect of stabilizing the debt-to-GDP ratio," said Tim Lee of pi Economics, a consultancy based in Stamford, Conn.

"The severely negative net national savings rate highlights the fact that the government deficit cannot easily be financed domestically — making it difficult for these countries to emerge from their debt trap."

Lee pointed out that Greece and Portugal are not the only countries so afflicted. The United States and Britain, with savings rates of 10 percent and 12 percent, respectively, join Portugal and Greece as being among the world's worst savers. But unlike the United States and Britain, Greece and Portugal, as members of the euro zone, do not have the luxury of printing money to depreciate their currencies and thus export their way to recovery.

Portugal, perhaps even more than Greece, has suffered in this respect. Portuguese exporters have been losing market share to competitors since entering the common currency in 2000. That has pushed the government to borrow from abroad to finance the current account deficit, thus pushing debt to current levels.

Like Greece, feeble savings rate puts Portugal in debt trap 04/15/10 [Last modified: Thursday, April 15, 2010 8:15pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, New York Times.

Join the discussion: Click to view comments, add yours

  1. Amid U.S. real estate buying binge by foreign investors, Florida remains first choice

    Real Estate

    Foreign investment in U.S. residential real estate recently skyrocketed to a new high with nearly half of all foreign sales happening in Florida, California and Texas.

    A National Association of Realtors annual survey found record volume and activity by foreign buyers of U.S. real estate. Florida had the highest foreign investment activity, followed by California and Texas. [National Association of Realtors]
  2. Trigaux: Tampa Bay health care leaders wary of getting too far ahead in disruptive times


    Are attempts to repeal Obamacare dead for the foreseeable future? Might the Affordable Care Act (ACA), now in dire limbo, be revived? Will Medicaid coverage for the most in need be gutted? Can Republicans now in charge of the White House, Senate and House ever agree to deliver a substitute health care plan that people …

    Natalia Ricabal of Lutz, 12 years old, joined other pediatric cancer patients in Washington in July to urge Congress to protect Medicaid coverage that helped patients like Ricabal fight cancer. She was diagnosed with Ewing's sarcoma in 2013 and has undergone extensive treatments at BayCare's St. Joseph's Children's Hospital in Tampa. [Courtesy of BayCare]
  3. The Iron Yard coding academy to close in St. Petersburg


    ST. PETERSBURG — The Iron Yard, a code-writing academy with a location in downtown St. Petersburg, will close for good this summer.

    Instructors (from left) Mark Dewey, Jason Perry, and Gavin Stark greet the audience at The Iron Yard, 260 1st Ave. S, in St. Petersburg during "Demo Day" Friday, Oct. 7, 2016, at The Iron Yard, which is an immersive code school that is part of a trend of trying to address the shortage of programmers.  The academy is closing this summer.  [LARA CERRI   |   Times]
  4. Florida's unemployment rate drops for fourth straight month


    Unemployment in Florida hit a 10-year low in June, clocking in at 4.1 percent, down from 4.3 percent in May. The state added 19,400 jobs over the month, and saw growth in most industries. But there's one glaring missing piece to the economic recovery puzzle: wage growth.

    Florida's unemployment level dropped to 4.1 percent in June from 4.3 percent in May. |  [Times file photo]
  5. Is sinkhole damage sinking Tampa Bay property values?

    Real Estate

    On a scale of desirability, the house for sale on Whittner Drive in Land O' Lakes would rank fairly low. It's a short sale; it sits on an unstabilized sinkhole and it's within a few miles of two houses that collapsed into a gargantuan hole July 14.

    A gated community in Hernando's Spring Hill area, Pristine Place has long been susceptible to sinkholes with nearly a third of its houses with documented sinkhole damage by 2012. Today, however, many houses with repaired sinkhole damage are selling for more than houses without any issues. [WILL VRAGOVIC   |   Times file photo]