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. Pinellas grants St. Pete's request to add millions to pier budget

    Local Government

    Times Staff Writer

    The Pinellas County Commission has granted St. Petersburg Mayor Rick Kriseman's request to dedicate millions more toward the city's new pier.

    The St. Petersburg City Council on Thursday  voted 7-1 to appropriate $17.6 million for the over-water portion of the Pier District. This is a rendering of what the new Pier District could look like. [Courtesy of St. Petersburg]
  2. Pinellas licensing board loses support for staying independent

    Local Government

    CLEARWATER –– The Pinellas County Construction Licensing Board on Monday lost its strongest supporter for staying independent.

    State Sen. Jack Latvala, a Clearwater Republican running for governor, said Monday that he will no longer support any legislation to keep the Pinellas County Construction Licensing Board independent. This photo was taken in August. [SCOTT KEELER | Tampa Bay Times]
  3. Triad Retail Media names Sherry Smith as CEO


    ST. PETERSBURG — Triad Retail Media, a St. Petersburg-based digital ads company, said CEO Roger Berdusco is "leaving the company to pursue new opportunities" and a member of the executive team, Sherry Smith, is taking over.

    Sherry Smith is taking over as CEO at Triad Retail Media, the company announced Monday. | [Courtesy of Triad Retail Media]
  4. Two new condo projects for same street in downtown St. Pete

    Real Estate

    ST. PETERSBURG — It lacks the panache and name recognition of Beach Drive, but 4th Avenue N in downtown St. Petersburg is becoming a condo row in its own right.

    Bezu, a condo project planned at 100 4th Ave. N in downtown St. Petersburg, will have 24 units including a three-level penthouse with infinity pool.
[Courtesy of Clear ph Design]
  5. AAA expects gas prices in Tampa Bay will continue to fall


    Ticking slowly and steadily, regular gas prices have receded for the last 10 consecutive days. The average unleaded gas price in Florida is $2.67 this morning, a nickel cheaper than a week ago. In Tampa Bay, the current average unleaded gas has dropped 7 cents from a week ago to $2.62. The national average for regular …

    Gas prices for regular gas continue to decline. In Tampa Bay, the current average unleaded gas is down 7 cents from a week ago at $2.62 a gallon. [Times file photo]