Spain, Portugal nowhere near Greek debt disaster: experts

30th April 2010, Comments 0 comments

Spain and Portugal had their credit ratings cut this week in the wake of Greece's spiralling debt crisis but analysts said the fiscal situation in the two countries is far from that faced by Athens.

"Spain and Portugal's capacity to meet their payments are not being questioned," as is the case for Greece, which faces key debt deadlines, Fernando Fernandez, an economist at the IE Business School in Madrid, told AFP.

"What is in question is the capacity of the economy of these two nations to grow," he added.

Ratings agency Standard & Poor's on Wednesday lowered Spain's long-term sovereign credit rating to "AA" from "AA+", causing markets to drop on fears the fallout from the Greek crisis was spreading to other parts of the eurozone.

A day earlier it had cut Portugal's long-term credit rating by two notches to "A-" and reduced the Greek rating to "junk" status, making Greece the first eurozone member state to be rated less than investment grade.

"There is no risk that Spain will default on its payments, at least in the short term," said economics professor Josep Martinez Sayeras at Spain's Esade business school.

And Portugal's former finance minister Eduardo Catroga said: "Greece has a problem of short-term liquidity, which makes it difficult to fulfill its debt obligations, while Portugal has a problem of economic growth against a trajectory of unsustainable debt.

"There is a lack of capacity to generate wealth in the coming years to pay the debt," he told Portuguese daily Diario de Noticias.

S&P also revised down its estimate for annual gross domestic product (GDP) growth in Spain between 2010-2016 to 0.7 percent from 1.0 percent, citing Portugal's sluggish growth prospects.

Analysts point out that both Spain and Portugal have lower public deficits and a lower debt-to-GDP ratio than Greece.

While Greece's public deficit was equal to 13.6 percent of its GDP last year, in Spain it was 11.2 percent and in Portugal it hit 9.4 percent.

Greece's debt-to-GDP ratio is 115.1 percent, compared to 76.6 percent in Portugal and just 53.2 percent in Spain.

"From the point of view of economic fundamentals, one must remember that the situation in Portugal is not comparable to that of Greece, both in terms of its debt and public deficit," said Philippe Sabuco, an economist with French bank BNP Paribas.

But while analysts said the debt situations in Spain and Portugal were different from Greece, the longer the financial crisis lasts in Athens, the greater the chance that they will have to adopt further austerity measures.

"If the confidence crisis continues, and risk premiums rise towards the Greek levels, the likelihood of IMF involvement also for Portugal will increase as the government's ability to fund itself at reasonable market conditions will diminish," Unicredit analyst Kolek Stefan told AFP.

© 2010 AFP

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