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Portugal Ought Not Restructure Its Debt

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  • Rodrigues, Pedro G.

Abstract

At the epicenter of the international financial crisis is a debt crisis where low-quality assets and the slowdown in economic activity have made creditors worldwide wary of the ability and willingness of debtors to comply with their obligations. In this context of indebtedness, now perceived as excessive, where expenses on interest are growing, some defend debt restructuring to alleviate this burden. This brief note aims to contribute towards the current debate with an analysis of the benefits and costs related to the possible but uncertain unilateral decision by Portugal to alleviate its expenses on interest. Considering i) the most recent international evidence that suggests that in the majority of the cases a debt restructuring is accompanied by a banking crisis and/or by a currency crisis, ii) that Portugal does not meet any of the cost-minimizing criteria, and iii) that an exit from the euro would probably be inevitable as a result of such a decision, we conclude that Portugal ought not restructure its debt.

Suggested Citation

  • Rodrigues, Pedro G., 2012. "Portugal Ought Not Restructure Its Debt," MPRA Paper 45823, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:45823
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    References listed on IDEAS

    as
    1. Roubini, Nouriel & Brad Setser, 2004. "Bailouts or Bail-ins? Responding to Financial Crises in Emerging Economies," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 378, April.
    2. Marta Abreu, 2001. "From EC Accession to EMU Participation: the Portuguese Disinflation Experience in the Period of 1984-1998," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
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    More about this item

    Keywords

    Debt crisis; International financial crisis; Restructuring; Troika;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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