Fifteen years after the major financial crisis (which started in 2007/2008) and more than a decade after Portugal went bankrupt and was subjected to an adjustment and rescue program (2011), the country has still not freed itself from the burden of aid banks (the most prominent cases are BES and BPN, as we know).
Portugal continues to carry one of the largest bills in Europe (EU – European Union) as a result of the so-called support to the financial sector provided by several PS and PSD governments in these years, according to the European Central Bank (ECB), in a study published in the latest economic bulletin.
According to the authority led by Christine Lagarde and a survey of Eurostat data conducted by Dinheiro Vivo, Portugal and its domestic taxpayers (the majority) still have to pay the fourth heaviest inheritance in Europe in terms of public debt (financial obligations).
According to the official figures published in the latest deficit and debt report sent to the European Commission a week ago, we are talking about 29.7 billion euros in debts to creditors (official European funds, banks and private funds), which corresponds to accounting for more than 12% of gross domestic product (GDP) by the end of 2022.
Only three countries are worse: Cyprus, Greece and Ireland. In this order.
Pressure for more fiscal consolidation
In other words, without these public debts – which largely served to bail out private banks (the biggest example being BES, the bank led by Ricardo Salgado until its collapse) – the Portuguese economy’s public debt ratio would be at 100% lying down. % of GDP or even below.
If Portugal had less debt, this would ease the pressure to achieve successive budget surpluses, the most common way to try to return the indicator (now the mainstay of the Stability Pact) to the 60% of GDP target.
This plan, supported by the government and the Minister of Finance, means that there is no “unlimited availability for tax cuts and giving everything to everyone”, as Fernando Medina recently warned.
But one thing is certain: without the more than 12% of GDP that the Portuguese owe, just because of the banks bailed out in the recent past (all police and justice cases), debt adjustment would be almost impossible. three years in advance.
This is because the latest projections (those from the Public Finance Council) predict that debt will not fall below 100% until 2025. And this in a context of successive annual budget surpluses.
In the study ‘Budgetary impact of support measures for the financial sector 15 years after the major financial crisis’, the ECB states that the budgetary impact of the proposed measures ‘differs significantly across euro area countries’.
“Some countries took no or almost no action, with the maximum impact on the debt ratio in ten eurozone countries approaching 10% or more.”
For example, we are talking about “Germany, the Netherlands, Latvia, Austria and Slovenia,” emphasizes the monetary authority led by Lagarde.
Ruins
But then there are the others who almost perished. “The four eurozone countries in need of an EU/International Monetary Fund (IMF) adjustment programme, such as Ireland, Greece, Cyprus and Portugal, plus Spain, requested financial support from the European Financial Stability Fund/European Stability mechanism.” .
In this, “the impact of debt was still greater than 10% of GDP at the end of 2022 and in some cases much greater”.
The ECB explains that the impact of the support measures has “significantly diminished, but they still leave a mark on public finances today.”
Financial support measures implemented since 2007 “increased public debt until 2012, the year when the impact peaked at more than 6 percentage points of GDP.”
“Since then, the impact of debt has diminished as governments have been able to sell the equity stakes they acquired in banks during the crisis and divest assets (mainly non-performing loans, such as non-performing loans) held by banks. difficulty,” the ECB experts explain.
“However, euro area government debt was still more than 3% of GDP higher in 2022 as a result of support to the financial sector.”
“The financing of the support came from the issuance of debt securities (just over half), loans (17.7%) and other obligations of public authorities (28.8%).
This last category mainly consists of the debts of banks that have been nationalized and reclassified as public administration and bad banks.” This is the case with the BES, which has been classified as a bad bank since the start of the rescue operation.
“Destruction of wealth and more unemployment”
But it’s not just about the fiscal effort required of taxpayers. Bailing out and supporting banks has a “direct and lasting impact on public finances”, but this “is only part of the global economic costs of a financial crisis”.
In addition, the costs “were also reflected in losses of wealth produced and an increase in unemployment,” the ECB noted.
Furthermore, “in some countries, adverse developments in the financial sector and public finances reinforced each other, increasing the cost of public financing and exacerbating the financial and economic crisis.”
According to the ECB, the latter situation caused “an increase in the debt ratio that is not included in the estimates of this study”.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
