Portugal Foreign Affairs Minister Threatens "Euro Zone Exit"

The simmering stew in the Eurozone took another turn for the worse as Portugal discusses a scenario in which it will abandon the Euro. The Wall Street Journal reports Portugal Foreign Minister Warns of Euro Exit

A Portuguese government minister openly speculated over the weekend that his country's economic frailties could lead to its expulsion from the euro zone, underscoring the growing fear in Europe that the continent's debt woes may force leaders to restructure the currency bloc.

In an interview with the Portuguese weekly Expresso published Saturday, Foreign Affairs Minister Luis Amado said Portugal faces "a scenario of exit from the euro zone" if it fails to tackle its economic challenges.

"There has to be an effort by all political groups, by the institutions, to understand the gravity of the situation we're facing," he said.

Portugal is now the front line of the sovereign-debt crisis that already has claimed Greece and threatens Ireland, economists say. If economic weakness is sufficient to push an otherwise crisis-free country to the brink of default and rescue, then larger countries, such as Spain and Italy, could be threatened, analysts say.

Portuguese Bluff?

In spite of the inclusion of Portugal as the "P" in "PIIGS" (Portugal, Ireland, Italy, Greece, Spain), the article makes a case that Portugal is not in any real trouble with property bubbles, excessive Debt-to-GDP, or unemployment.

Portugal did have weak growth for a decade, however, it managed to avoid the massive problems that befell Ireland, Greece, and Spain.

I suspect this threat is a bluff, but if so, it's a poorly-timed maneuver that is certain to heighten tensions in the Eurozone.

Even if higher ranking officials attempt to downplay the Foreign Affairs Minister's statements (something I quickly expect), the uncertainly may cause lasting damage.

Deep Denial in Eurozone

Note that Greece is still in massive denial about its recovery plans. See International "Extend-and-Pretend" - Greece Needs IMF Extension for renewed concerns about Greece.

In the European bond market meltdown, the ECB is Buyer of Only Resort for Greece, Ireland and Portugal. As noted above, that has Portugal fuming.

Ireland is in a bigger mess than Greece and Portugal, but Ireland does have an offer of "help" from the IMF. Meanwhile I ask (and answer) the question Can the IMF "Help" Anyone?

The answer might be different than you think. Give it a look if you have not yet done so.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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