Wednesday, 16 March 2011

Credibility deficit

Everybody knows that politicians will have, almost inevitably, a difficult relationship with the truth. But the latest developments in Portugal's political life increasingly remind me of Orwell's "1984" and the sudden shift in alliances there between Oceania, Eurasia and Eastasia - while, at the same time, the ruling class got to persuade the people that the ally had always been the same.

The "problem", of course, is that we aren't in the totalitarian world of "1984". Whoever is willing to spend a few minutes on the internet can easily expose many recent, glaring reversals in policy goals over a period of only a few months (for instance, here, here and here).

Even if one can leave aside issues about the strength of political convictions (which are irrelevant from the point of view of the hard-nosed international markets), questions about credibility become increasingly more pertinent: Can the European Commission (and/or Germany) really pretend to believe a program of reforms such as a 17-slide PEC IV which, at least in some areas, is in complete contradiction with what were regarded as fundamental principles for many years up to just a few months ago?

1 comment:

  1. The answer:


    Moody's rating action was driven by the following four factors:

    1. Subdued growth prospects and productivity gains over the near to medium term until structural reforms, especially in the labor market and the justice system, begin to bear fruit;

    2. Implementation risks for the government's ambitious fiscal consolidation targets;

    3. The government's balance sheet may need to expand further in the event it has to provide financial support to the banking sector and government-related institutions (GRIs), which are currently unable to access capital markets; and

    4. Challenging market conditions that have led to increases in the government's financing costs, which, if sustained, will cause its debt
    affordability to weaken, particularly in the context of generally higher European interest rates. Accessing the European Financial Stability
    Facility may lead to a reduction in financing costs, but questions would remain as to when the government would be able to re-access the capital
    markets and on what terms.

    The new measures in the recent update on the stability and growth programme announced by the Portuguese government figured prominently in
    the rating conclusion. Moody's expectation that the revenue increases, expenditure reductions, and structural reforms specified by the government will be achieved is a critical consideration underlying the A3 rating.

    The rating agencies are the new rulers, no one can escape!