Portugal follows Ireland out of bailout programme

Europe Sun Sunday 18th May, 2014

Portugal has become the second country after Ireland to end its bailout programme.

Portugal was on the edge of insolvency in 2011 when it signed up to a 78 billion euro austerity commitment with the European Commission, European Central Bank and International Monetary Fund.

Portugal exited the programme on Saturday having ironed out a series of imbalances and putting the economy back on a positive trajectory. Unemployment currently is running at 15.3 percent but this is lower than the 18.5 percent three year programme targeted.

Portugal, like Ireland, rigorously adopted a series of measures designed to put the country's economy back on track. Ireland exited the programme late last year.

German Finance Minister Wolfgang Schaeuble noted on the weekend that Portugal's exit showed the European crisis resolution strategy is working.

"Steadfast program implementation has allowed Portugal to bring its economy back on track, put public finances on a path to sustainability, and reduce imbalances that had been building up before the crisis," Schaeuble said in a letter he forwarded on Saturday to Portuguese Finance Minister Maria Luis Albuquerque.

"Of course Portugal still faces important challenges, including with regard to sustaining fiscal consolidation over the medium term and continuing growth-enhancing structural reforms," he said.

The Portuguese government on Saturday was upbeat but committed to maintaining the momentum of the austerity measures. "We reaffirm before the Portuguese and the world that the end of the programme does not mean the end of the reformist momentum. We want everyone to know that we will not stop," Carlos Moedas, assistant secretary of state to the prime minister, said.

The statement was a sign the country's mid-term reform strategy titled "Road for Growth" would continue despite the clean exit from the troika of international creditors.

Portugal's "clean exit" comes after a string of successful bond sales which reflected greater investor appetite, making it the second country following Ireland's footsteps without a recourse to a precautionary credit line.

Last month, the country held its first un-syndicated debt auction since 2011 and raised the maximum 750 million euro in 10-year bonds, auctioned at a better-than-expected yield of 3.57 percent.

The Portuguese economy has shown signs of recovery, despite a 0.7 percent contraction in the first quarter of this year compared with the previous three months, announced by the National Institute of Statistics Friday.

Portugal's export performance has boosted the balance sheet with the country's current account moving into positive territory for the first time since the late 1960s, and unemployment fell for a third quarter to 15.3 percent.

However, the country still has a staggering debt burden of 129 percent and faces significant challenges on the road to full economic recovery.

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Income Inequality Drives Economic Book Into US Best-Seller List

WASHINGTON ?? It's an unlikely best seller, catapulting a soft-spoken French economist into rock star status and possible Nobel Prize contention.

Capital in the 21st Century by Thomas Piketty examines the history of income inequality in the U.S. and Europe since the 18th century.

The book is number one in the non-fiction book category of The New York Times and sold out in its first week on Amazon. It presents a compelling case for something many have long suspected - that the rich are getting richer.

"You know, if two-thirds of this growth goes to the top 1 percent, it's not clear that this is a good deal for the rest of the population, Piketty said.

Using charts and tax data going back to the start of the industrial age, Piketty's grand theory is that, over time, capital or wealth grows faster than economic output; but, the controversy centers on the author's policy solutions, among them a global tax on wealth.

Critics say such punitive measures would hurt everyone.

"I disagree with pretty much all of his policy recommendations, but, even beyond that, in the sort of purely analytical part, I think he exaggerates how much capital has grown over the last 100 years," said Stan Veuger, a political economist at the conservative American Enterprise Institute.

Veuger argues much of the wealth accumulation in the U.S. has been due to the rise in home ownership; but, others say that does not account for the growing concentration of wealth among a privileged few.

"Perhaps there's something more general about a problem where inequality in a democracy is going to lead to the rich prevailing despite the rules that we have on the books that should normally prevent that from being the case," said New York University's David Stasavage.

And emerging economies are not immune. In China, Piketty says negative population growth will drive a wedge between rich and poor.

"Already, you know, inheritance of assets is becoming a big issue and access to real estate property in larger Chinese cities where you have some people inherit from the property of their parents. And, you know, some migrants will be completely unable to access property."

Piketty hopes the book sparks more discussion. That's a view shared by Yale professor Robert Shiller, who, after winning the Nobel prize for economics, told VOA that rising income inequality is the biggest problem facing the world.

"We should think now about a contingency plan for the possibility of much worse inequality and how do we stop that? Well, it has to be some form of taxation of the rich."

At nearly 700 pages, Piketty's book is not an easy read, but both fans and critics say it's bound to generate heated discussion in a U.S. election year likely to be dominated by economic issues.

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