Ominous Signs: Portugal Following Greece Towards the Cliff

With Greece set to default (restructure of the debt is the polite term) the great fear of European officials and investors is that the great default contagion would spread to other countries also in a precarious fiscal shape, it appears that may be happening:

April 27 (Bloomberg) -- Portugal risks becoming the new Greece.

With a higher debt burden and a slower 10-year growth rate than Greece, Western Europe’s poorest country is being punished by investors as the sovereign debt crisis spreads. The risk premium on Portuguese bonds rose to more than double the past year’s average this month. Portugal’s credit default swaps show investors rank its debt as the world’s eighth-riskiest, worse than for Lebanon and Guatemala.

“We do not ignore that Greece’s particular situation has contagion risks, and we are feeling it,” Finance Minister Fernando Teixeira dos Santos told reporters in Lisbon on April 22. “The performance of spreads in the market reveals that contagion risk.”

As of now Portugal has a public debt that is 83.7 percent of its of its GDP, not that far off from Greece which has hit 99% . Now debt percentage in relation to GDP is not a death knell in itself, for comparison, Japan has a whopping 191% debt per GDP. Of course Japan is coming off of decades of stagnation and an economic malaise that makes the USA in the seventies look like the our economy in the fifties. But despite that, Japan has managed to hold the country together and avoid the social strife that is currently rocking Athens.