Portugal will be the next to restructure its debts in a manner similar to Greece, and both countries will likely exit the eurozone, says New York University economist Nouriel Roubini.
Greece recently restructured its debts with private creditors, and while the deal gives the country breathing room, it doesn’t solve its economic problems of shrinking output and rising unemployment.
The only way out is through abandoning the euro, which would make the country’s exports more competitive.
That would force Portugal to follow suit.
“In terms of debt restructuring after Greece, I think Portugal is the more likely that is going to require a debt restructuring and maybe eventually an exit like Greece,” Roubini says.
Bond markets in the larger Italy and Spain have calmed lately as evidenced by falling yields on government debt — lower yields illustrate less fear on the part of lenders.
But things could change.
“The recession is becoming more severe, and you have fiscal austerity, you have the credit contraction and you have the strength of the euro, and if the recession doesn’t bottom out, in a few months from now, the market is going to worry about the fiscal deficit, it’s going to worry about growth and about unemployment, and then the spreads are going to widen again.”
