Greek Contagion – Portugal Plays Good by accelerating Deficit Reduction

The last 2 weeks market gyrations have had their effect on the PIIGS. The rising interest rate on their bonds and the consequent effect on their economies is making the politicians sit up and take notice.While Merkel and Sarkozy the leaders of the 2 biggest EU countries play the “bad cop” routine of short squeezing the “speculators , Portugal will play the role of the “good cop” by accelerating the deficit reduction plans .However I don’t think any of these short term measures will have any effect in solving the structural problems facing Europe .

Portugal to speed up deficit reduction – Economic Times

Portuguese Prime Minister Jose Socrates has announced plans to delay some major public projects to speed up reducing the country’s public deficit this year, local media reported on Saturday.

“The government has decided to reduce the deficit this year to 7.3 per cent of GDP,” Socrates told Portuguese journalists late Friday after a meeting of eurozone leaders in Brussels.

Portugal, which is struggling to fend off comparisons to Greece, had previously said it would cut its public deficit from a record 9.4 per cent of output last year to 8.3 per cent in 2010. It expects to be under the EU limit of three per cent by 2013.

To speed up the deficit reduction, the Socialist premier said the goverment would delay several major projects including the construction of a new airport at Lisbon and a third bridge over the river Tage which is aimed at accommodating a future high-speed train link between the Portuguese capital and Madrid.

“These projects remain absolutely essential to the modernisation of the country but I think that it is sensible to wait for the financial situation to stabilise before launching them,” Socrates said.

Struggling with tepid growth, debt-laden Portugal is seen as vulnerable to the sort of crippling speculative market pressure that has hobbled Greece. Last week Standard & Poor’s downgraded Portugal’s credit rating owing to concerns about fiscal and economic weaknesses.

Still analysts maintain that Portuguese solvency is not under threat