South Europe's debt about to explode

The fall of Coelho's conservative forces in Portugal and the preparation for a left-wing coalition government has not been received with enthusiasm in Berlin and Brussels. Not only for political and ideological reasons, but mainly for the fact that after Greece, Portugal is expected to put in question austerity politics in the European South.  The so-called "success story" of Coelho, as in the case of Samaras in Greece, was nothing more than wishful thinking and distorted reality. Portugal has the highest public and private debt, counting for 530.5% of GDP, far beyond the other three crisis-affected member-states - Greece, Spain, and Italy. Continuous spending cuts in the public sector since 2011 have increased primary surpluses for two consecutive years, but the corporate sector is financially asphyxiating, issuing bonds that have small effect in sectoral growth due to decreased spending power, weak marginal gains, lack of expansion projects. Low interest rates encourage borrowing, but leverage is not built and the bubble that burst after the 2008 mortgage crisis could backfire again. This year, corporate debt is expected to reach 240.1% of GDP.   Greece presents the highest rate in government debt with197.2% of GDP, having an overall debt of 354.5%respectively. Running the third bailout and a with a number of pending issues in the negotiations table, a successful review could certainly control mounting pressure to the government, but it cannot give a deep breath to the domestic market unless recapitalization is processed, market is soared and sovereign debt is restructured. Spain is faced with a huge household debt of 150.3%. The government has unsuccessfully addressed so far this issue and resorted to a policy that violates fundamental rights (i.e. evictions). Andalucia, Valencia and Cataluna have been deeply affected by Rajoy's policy, with the latter staging a strong independent movement that is planning to pull the ropes against Madrid the central government until the end.

Italy's banking stability is put at question with a debt reaching 20.5%. The problem is, as in Greece, that systemic banks set complex burdens and restraints in their loan policy, depriving hundreds of SMEs from necessary funding, especially in the early stages of their operation. Municipal elections in March 2016 are expected to exert pressure to PM Renzi and his government, mainly stemming from the newly founded left party and the vigorous social and political movements that gradually take their place in the public political arena. Economic stagnation and the ongoing refugee crisis will certainly play ad definite role in the radicalization of politics.

All four cases in the European South present unique challenges and characteristics, but they primarily unveil in the most convincing way that austerity has repeatedly failed to respond to their financial and social needs and generate a true reformist agenda. Divergence is growing and social unrest is intensifying. In this fragmented environment, another European crisis could always break up.

by Dimitris Rapidis and Miguel Coelho

sourche: http://www.bridgingeurope.net/south-europe-debt-about-to-explode.html