Portugal is the most vulnerable country in the so-called group of the world’s most developed countries to rising interest rates and the closure of cheap money programs by the European Central Bank (ECB), as yesterday (Monday the 22nd), the Organization for Economic Cooperation and Development (OECD).
According to the annual study on debt prospects (prospects) of more than three dozen countries of the OECD club, Portugal (the government) leads a group of 32 states analyzed, with 50% of its public debt held by the banking system Eurozone hubs.
The vulnerability of the country and the state budget is high because the Eurosystem raises interest rates, but above all because it will start selling government bonds as soon as they come to maturity.
Starting in July, the ECB expects to dump the bonds it still holds under its massive asset purchase program (APP) into the secondary market, driving up Treasury yields.
The more of these assets there are on the market, the lower their value will be.
At the end of April, the central bank had €55.1 billion in Portuguese debt, with an average maturity of about eight years. These figures are the most up-to-date available and come from the ECB.
The other major program in the eurozone that is still active is the pandemic (PEPP), with the plan to start selling bonds from the end of next year. Under the umbrella of this PEPP, Portugal had 34 billion euros in custody at the central bank at the end of March. The average maturity of these bonds is approximately seven years.
In the Portuguese case, most of the value of government debt securities (bonds, as mentioned) is held by the Bank of Portugal, which operates through the Eurosystem.
The two programs together have more than €89 billion in Portuguese debt. A vulnerability that the OECD points out because said programs are about to come to an end.
According to the Paris-based organization, Slovakia ranks second, with nearly 50% of its debt to the central bank.
In the group of the rich, Iceland is the country least vulnerable to monetary tightening measures (rise in interest rates) as it has virtually no liabilities on the central bank’s balance sheet, reports the organization led by Mathias Cormann.
The OECD warns that “the pressure exerted by QT programs – Quantitative Tightening [aperto monetário, com subida de taxas e terminação de programas de compras de dívida] it will vary according to its pace and size”. And much will depend on “the profile of the maturities and the value dimension of the assets held”.
More than €89 billion of Portuguese debt held by the central bank is a huge amount for Portugal and quite significant compared to what happens to other euro countries.
Taking into account “the relative size of government debt securities held by central banks in the OECD area, it appears that on average 25% of government debt is held by these central banks”.
The amount involved “varies between 0% in Chile, the Czech Republic, Denmark and Norway and 50% in Portugal,” according to the organization’s new study.
State and beyond. Families and businesses under pressure
It is not only the OECD that warns of this threat. Last week, the European Commission (EC) also showed that Portugal is on the radar of the biggest consequences that could arise with the rise in the cost of debt.
As reported by DN/Dinheiro Vivo, the Portuguese economy has several vulnerabilities and one of the most notable in the Commission’s new spring forecast is the strong exposure of many households to the sudden and large-scale rise in interest rates, especially for individuals who have more recently loans to buy a house.
“The higher interest rates on mortgage loans should have a limited impact on household budgets in the European Union thanks to the prevalence of fixed-rate contracts, which are worth 85% of the total,” says Brussels.
According to the Bank of Portugal, in the most recent financial stability report published in Portugal last week, “the stock of floating rate home loans continues to predominate (about 90% of the total)”.
And, even worse, “more recently the 6-month index [Euribor a seis meses] has gained ground in new lending, to the detriment of the 12-month index”.
For new contracts, up to 2022, 85% of the amount due for the purchase of homes varies after six months, six months, due to successive increases in Euribor interest rates.
Luís Ribeiro is a journalist for Dinheiro Vivo
Source: DN
