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UK is not Portugal, but it could become so
UK is not Portugal, but it could become so
And then there were three. For the UK, there could scarcely be a more salutary warning of the dangers of runaway public debt than the sight of Portugal joining Greece and Ireland in economic enslavement to the faceless bureaucrats of Europe and International Monetary Fund.
Royaume-Uni n'est pas le Portugal, mais il pourrait le devenir
Et puis il y avait trois. Pour le Royaume-Uni, il ne pouvait guère être un avertissement plus salutaire des dangers de la dette publique galopante que la vue de rejoindre le Portugal la Grèce et l'Irlande en esclavage économique aux bureaucrates sans visage de l'Europe et le Fonds monétaire international.Lisbon has attempted to sugar the pill of its requested €78bn (£70bn) bail-out by insisting the terms will not be as harsh as those imposed on Greece and Ireland. The Irish will certainly have something to say about that if it turns out the Portugese have won a genuinely better deal. But whatever the medicine's palatable outer coating, it's going to taste quite bitter enough.
Most analysts predict the accompanying package of austerity measures will push Portugal back into recession both this year and next, threatening a vicious cycle of decline where more austerity still is required just to keep up with a shrinking economy. Some form of eventual debt restructuring – the polite term for default – now looks all but inevitable, whatever the denials. Assuming the bailout is approved, it will give Portugal a couple of years grace, but at the end of it, haircuts already seem a done deal.
Britain, thank goodness, is not part of the eurozone, yet the "fiscal conservatism" of the UK's economic policies has much in common with what Europe is imposing on its profligate periphery. The question therefore arises of why the UK is voluntarily choosing to follow a course which seems permanently to condemn the European fringe to economic penury.
Obvious though the answer might seem – that it is better to do something on your own terms than wait for markets and other lenders to impose it on theirs – it has not yet been properly grasped either by the Labour opposition in the UK, or the Obama administration in the US. For a country to lose its fiscal sovereignty, which is what happens when investors won't lend to it, is the worst of all possible outcomes.
There are, of course, many differences between Britain and the troubled eurozone periphery, which on the face of it seem to give the UK greater leeway in raising public debt. For a start, the UK is a much bigger economy, and therefore less vulnerable to shocks. Its sovereign debt also has a better maturity profile than most European peers, which means there is proportionately less of it to refinance each year. Again, that makes UK government bonds (gilts) less vulnerable to the sort of buyers' strike we've seen in Europe. What's more, most UK sovereign debt is held by UK investors, making it less reliant on the shifting sentiments of overseas buyers.
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