As the Greek debt dilemma finds resolution, currency traders wonder if there will be similar Euro Zone support for Portugal debt relief. …
As the Greek debt dilemma finds resolution, currency traders wonder if there will be similar Euro Zone support for Portugal debt relief.
Both Greece and Portugal are part of the so called PIIGS group.
Portugal, Italy, Ireland, Greece, and Spain all have been in danger of defaulting on their national debts.
The situation was sufficiently bad in Greece that it required the largest government bailout in history, cobbled together by the various solvent members of the Euro Zone, the European Central Bank, and the International Monetary Fund.
In addition, private investors in Greek bonds took a fifty percent reduction in bond value and gave Greece longer to repay in return for the country not simply refusing to pay.
The problem for the remaining PIIGS nations will be getting credit at reasonable rates.
Anyone buying Portuguese bonds may be thinking that in return for a few percent interest each year they will be running the risk of having their bonds written down by fifty percent or losing their investments completely.
Euro Zone support for Portugal debt relief will be important in the country is to avoid the debt default that many feared for Greece.
Then traders will want to consider what the Euro Zone bailout package consequences will be for other nations.
Portugal, Recession, and Its Debt Burden
The country of Portugal has a continuing recession with a one percent drop in GDP in 2011.
It is expected to have as much as a four percent drop this year and perhaps another two percent in 2013.
With the Greek scenario as a backdrop, Portugal will have trouble finding any private lenders to help it out.
Although economists expect Portugal to emerge from its recession within five years, that does not encourage investors at this point.
Thus Euro Zone support for Portugal debt will be critical in the coming years. If the solvent so called core group of European Union nations are willing to support Portugal in the coming years it will likely emerge more fiscally sound.
However, it will probably not get any debt relief from European Central Bank loans but rather need to pay back every Euro.
In addition, the austerity measures taken on by nations across Europe may well lead to a recession in the European Community in the year or so to come.
This would simply make things worse for Portugal and the other nations struggling with their debt burdens.
Trading the Euro
It appears that the European Union is not going to break up, as some feared a year or more ago.
However, fears of a “domino effect” of debt defaults from Italy to Spain to Portugal to Ireland and back to Greece still concerns traders and investors.
The answer for the currency trader, in this situation likely lies in how the European Central Bank is dealing with the generalized debt dilemma.