Portugal Victim of EU Poison Pill Policy

By Grant de Graf

Portugal is the latest victim of the difficult standards and expectations that the European Union is imposing on its members, to meet high levels of austerity and government spending cuts. Very often the dogma that is being propagated at central government is one that may be good for the Union in general, but which is inappropriate at a local level.

As predicted, attempts to implement the stringent measures of austerity by central government are bound to impact the electorate. Politicians are being forced to resign or being compelled to become recipient to the wrath of their respective voters, who express dissatisfaction with the manner in which their economy is being managed. This has been true of Ireland where the ruling party was ousted and more recently in Portugal, when Prime Minister José Sócrates was forced to tender his resignation, after Parliament rejected a new austerity plan.

One may argue that Portugal's attempt to implement the austerity measures was voluntary and a course which was inspired to win investor confidence, for its slew of bond issues that it has had to facilitate. However ultimately, investors will be wooed through any action that has a positive long term goal, even if that plan amounts to stimulatory measures, for the economy.

Additionally, Portugal's ratio of GDP to debt remains low relative to Japan, Italy and France.