With Portugal central to the European debt crisis, Vítor Gaspar, Minister of Finance of Portugal, addressed the issue of his country's credibility and competitiveness at an event held on March 19, 2012, at the Peterson Institute.
Mr Gaspar focused particularly on a major aspect of the adjustment programme that Portugal is going through, namely the restoring of credibility and confidence.
"On the leveraging and financial stability, what is going on is a process of adjustment which is operating faster than foreseen in the programme. Portuguese banks are at this point in time much better capitalised than they were at the beginning of the programme and they have been able to deleverage in a relatively fast way by selling non-corp assets and by attracting additional bank deposits.
If you compare Portugal with other programme countries, Greece and Ireland, one of the features that Portugal has which is different from the other two countries is that bank deposits have been increasing throughout the period. As a matter of fact, bank deposits in Portugal have increased more than in the average of the euro area. So the leveraging and financial stability are progressing in accordance with the programme. These issues were discussed in detail during the third review of the adjustment programme."
"The programme... is robust. And it is robust because the favourable impact from structural reform on potential output and on the speed of adjustment are not taken into account while the evidence that we have from adjustment in 2011 suggests that the Portuguese economy actually adjusts much faster than one envisaged originally in the programme.
Finally and most important, the programmes allows for a gradual build up of credibility. The programme shelters government financing from the vagaries of financial markets. The programme allows us to be out of one market until 2013. The programme includes quantitative objectives and targets that are steered and monitored in the regular reviews of the programme. And before the crucial date of September 2013, we’ll have a total number of nine reviews and success on a quarterly basis nine times in a row will be compatible with quite a substantial increase in credibility and confidence. More generally, compliance with the programme and success in adjustment will change gradually markets expectations and perceptions and therefore will allow us to manage our path back to the bond market at close to normal market financing conditions in time for September 2013."
Full speech
© Peter G Peterson Institute for International Economics
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