Sunday, 28 February 2010

Portugal and Greece look the same?

   Suddenly, the comparison of Portugal with Greece took the major stage in political and economic discussions.
   The surprising part is how far the discussion has gone. To be clear from the outset, from what I had the chance to see in terms of numbers, the Portuguese and Greek cases share some similarities but for most of the economic fundamentals, the two economies are rather different.
   True that international lenders have tended to see Portugal and Greece more or less in the same class of countries. The first person that pointed that out, to my knowledge, was Luis Campos e Cunha, who noted that our spread in international borrowing was following the Greek one with a delay of a semester (more or less, if I remember well).
   This brings the crucial point, the two economies may be different, but if for international borrowers they look similar, even if these are biased perceptions, then interest rates in international borrowing will reflect these beliefs.
   If this is really the major issue, then Portugal needs to act on such beliefs, with policy measures but also with reliable information. It is not enough to claim that we are different, Portugal has to take measures that Greece would not, thus showing in a credible way that we are different.
   Only "cheap-talk", like written documents about long-term strategies, will not be enough.
   If the Portuguese Government really wants to make a case of difference to Greece, choose a couple of policy measures that we can take but the Greeks cannot and announce them (and implement). Otherwise, if the Portuguese Government just adopts milder but similar measures to the ones in Greece, how can it expect to be treated differently?

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