Dear Editor,
I read with interest the article by Stephen Anderson in the Algarve Resident of March 2.
As a frequent visitor who has been looking at property purchase for some time, Stephen’s statement “There is certainly a lot more optimising coming through certain channels now” and “Portugal has met every criteria Troika has set” is not entirely supported by the current situation.
Although Greece’s debt crisis has been ring fenced for now, the trust of global bond markets has been shattered and this will expose Portugal to danger.
Because the rule of law has been treated with contempt by Greece, the likely litigation for years to come will deter long term investment making investors very cautious in terms of Portugal.
The ECB holds £185bn of Greek/Portuguese/Irish/Spanish and Italian bonds. The Greek parliament’s retroactive law last month to insert collective action clauses into its bonds adds a real problem in credit markets.
This would not matter if Greece was a one off but the markets fear that Portugal will be subject to the same scenario once austerity starts to bite.
One major analyst predicts Portugal’s economy will contract by 5.7% in 2012. This could lead to Portugal’s bondholders being subject to a 50% haircut.
Portugal’s £78bn loan from the EU-IMF will reduce private creditors to a lower status and despite previous pledges to the contrary have reversed protection on the Portugal loan. The IMF’s figures show Portugal’s public debt reaching 118% of GDP in 2013 and combined public and private debt of 360% of GDP. This is 100% above Greece.
This massive burden on the current shrinking economy and a current account deficit still at 8% of GDP bodes ill. Both Greece and Portugal, in terms of exchange rates, are overvalued by 20%.
Nomura reckons that Portugal used fiscal engineering last year to massage deficit figures and raided private pension funds. No rally has come in Portuguese debt since the ECB flooded banks with one trillion euros.
Ten year yields are stuck at 13.2%. I do not see any way forward for Portugal in the medium term and the facts as outlined will reduce property values in my opinion significantly. Let’s hope I am wrong…
Ken Hope, Former IFA, by email
