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Dublin: 17°C Sunday 19 September 2021

Column: Portugal and Ireland have much in common… and we both need a leg-up

On a visit to Portugal, former trader Nick Leeson finds a country that will find it more difficult to recover than Ireland – and shows that Moody’s got our credit rating dive wrong.

Nick Leeson

MY FAMILY AND I take a holiday every year in Portugal. We all thoroughly enjoy it and love spending a month in the sun in Lagos but it was always going to be interesting to see how things have changed since our last visit in October.

Back there now, I have been speaking to friends and asking whether things have either improved or deteriorated.

As we all know, Portugal is gripped in the mire of economic bailout and serious economic downturn, just as Ireland is. We hear lots about the Greek crisis because it is by far the worst and they take a far more aggressive approach in the way that they campaign for change, protesting in the streets. Often, direct aggressive confrontation is the norm.

The Portuguese approach is much more closely aligned to that of the Irish: Outrage at what has happened over the last few years. Disgust at the way the banks and government have handled themselves and their failure to arrest the decline but all done very privately and politely. I don’t think we will ever see the type of protest that we have seen in Athens occurring in either Lisbon or Dublin.

A peripheral look would suggest that Portugal is faring better than Ireland. Moody’s recently downgraded Portuguese government debt to A3, that’s four grades better than Ireland’s ‘junk’ status. A closer look would suggest that the situation in both countries is more closely aligned than
you may think. There are certain areas that would present more encouragement in terms of Irish prospects.

‘Where is the money?’ adorned the headlines of the national press

Portugal, like Ireland, has a new Prime Minister, Pedro Passos Coelho. His PSD party defeated the Socialists at the last election. His first task in government has been to collate figures and take his own assessment of the situation. Just last week, he cast doubt over the integrity and honesty of his predecessors in government by accusing them of not telling the full story when it came to the country’s accounts.

‘Where is the money?’ adorned the headlines of the national press. ‘What we were told was there and what we found are two different things,’ he said and made it clear that he foresees ‘greater hardship’ as his party struggles to balance the books. I’m sure that Enda Kenny and his party experienced a lot of similarities when they assumed the reins of government.

Portugal’s budget deficit for the first quarter of 2011 stands at 7.7 per cent, this is currently 1.8 per cent above the target set for 2011, but the government still believe that they will hit the overall deficit target of 5.9 per cent target. Some of the measures as in Ireland are proving a bitter pill to swallow. The latest measure of taxing Portuguese taxpayers 50 per cent of their Christmas bonus money earned above the minimum wage is not being well received.

The traditional holiday season of June, July and August will be a period that they will be hoping will reduce that budget deficit. Thankfully figures from the National Institute for Statistics show a rise of 8.2 per cent in the number of nights spent in hotels by tourists, though fewer guests were Portuguese than previously.

The restaurants in Lagos are full night after night but on a Sunday, the traditional day that Portuguese families visit the beach, I found the beaches surprisingly empty and far fewer Portuguese families than normal.

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Certain developments remind me of the ghost estates in Ireland

Each positive sign is balanced with a negative though. Estate agent friends will tell you that the property market is starting to turn but there is no way that it can be. Big new developments on the fringe of the main entertainment area remain empty. Certain developments have only one or two families holidaying in developments that have three to four hundred apartments empty, reminding me of the ghost estates that we have here in Ireland.

Unfortunately there are also isolated pockets of violent crime that I have never heard of before. An Albufeira hotel was recently held up by a machine-gun wielding gang. Thankfully the guests were largely undisturbed.

Like Ireland, Portugal has received praise for their austerity measures. The President of the European Council suggested that the austerity programme was ambitious but that “with effort, time and backing Portugal will pull through”.

Greece last week received what amounts to a 21 per cent reduction in their debt burden. The bondholders and banks will have to assume the losses that this will entail. I, for one, do not think that it will be enough to resolve the situation in Greece, a number approaching something like 50 per cent will be at least the figure that is ultimately needed.

Ireland and Portugal would benefit greatly from a debt reduction of 21 per cent and that might be just the fillip that both countries require. I am left in no doubt that it will have to happen over time. For many different reasons, it cannot all happen in one go.

Ireland’s recovery will have a far broader base than Portugal’s which I think unfortunately will be overly reliant on the tourism industry. I hope both will recover in as short a period of time as possible but I think Moody’s may have got the ratings wrong.

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