Thursday, 31 March 2011

Elections and revision of the public deficit

Today, two pieces of news: elections set for June 5 and revision of the public deficit.

At the same time, interest rates on public debt are still rising. The question is why. It is tempting to link it to one or both pieces of news. Somehow, this is sounds unconvincing.

That elections would have to take place has been relatively obvious since past week, so no surprise there.

On the revision of the public deficit, if it was the case that new information on previously unknown spending was surfacing, I would understand it. But the revision does not bring new facts, just rearranges expenditure. It is counting as part of public deficit the debts from public transport companies (railways, subway) and the rescue of two private banks (BPN and BPP). (you can read the press release with the explanation here: Press release by INE)
None of it is new.
The deficits in transport companies are usual, and sooner or later will have to be covered by the Government.

And none of the rearrangement of how public accounts are reported brought new expenditure to the open. So, it is hard to understand any "financial market" reactions, unless we want to consider that operators in international financial markets still have shallow knowledge of the Portuguese economy.

An alternative explanation, is that I am neglecting something, of course...

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