This week Portugal managed to borrow one year money at a negative interest rate. Yes, that’s right. The lender has to pay a small sum for the privilege of lending to Portugal. You have had to pay Germany for the privilege of lending to her more often in recent months and over longer term loans, but for this to happen for Portugal as well is surely a matter to examine.
Portugal currently does not have a Prime Minister. The recent General election did not deliver a majority for any party. The outgoing PM and government was allowed to stay in office by the President, so the left wing parties who thought they had “won” the election voted it down. The President is thinking about what to do next. The outgoing government accepts austerity and the full Euro package of policies. The left wing opposition is anti austerity, though much of it is pro Euro. As we have seen in Greece that is a difficult combination of views to hold. Could the left wing parties come together to form a governing coalition? What would their approach then be to the policies required by the Eurozone?
Portugal is another piece of evidence in the case of the diminishing importance of national democratic choice in the Eurozone. When so many decisions about budgets, taxes, spending and borrowing are made for a country, much of the substance of normal elections is removed from decision by the electors.
Portugal has more than 11% unemployment, with more than 31% youth unemployment. It has only managed a growth rate of 0.4% a year since 1988, and suffered a nasty recession in recent years. Yet despite this, it can now borrow at no cost.
As the US and UK attempt to distance themselves from Quantitative easing and in the case of the US contemplate an interest rate rise, monetary action and conditions remain anything but normal in the Eurozone. As the zone still finds growth hard to achieve and sustain, and as the scars of the crash and Eurozone crisis are still all too visible in unemployment and poor economic performance, the European monetary authorities experiment further with unorthodox interest rate and borrowing policies. Who would have thought the Germans would do that? Does risk lie ahead as debts are built up with no interest cost.? Why should people save and be prudent in such a world?