European Crisis: Next Stop Portugal Says Chandler

Jeff Macke

Lost in the news of the faux resolution to the Greek budget crisis earlier this week is the fact that the issue hasn't really been Greece at all. Economically speaking Greece will be comatose, at best, for the foreseeable future.

The real goal of all this paper shuffling and gesturing by European officials is saving the rest of the Eurozone. On that front, Marc Chandler says the latest Greek bailout qualifies as at least a partial victory.

"This probably forestalls Spain and Italy from having even bigger problems," says Brown Brother Harriman's Global Head of Currency Strategy.

That's the good news. The bad news, at least for those hoping Europe has finally created a viable firewall, is what Chandler is seeing in Portugal.

Noting that Portugal's bonds "sold off hard" in response to the deal, Chandler says the country that put the P in "PIIGS" is likely to be the next in line. At over 12% yield on their 10-year treasury, Portugal's interest rates are simply too high to allow for sustainable operations, let alone growth. Whether you're a Keynesian money dumper or Austrian laissez faire type, imposed austerity for a country with greater than 14% unemployment and reasonable spending, borders on economic death.

If the EU is going to use a model of "Debt/ GDP" to gauge economic health, Portugal's failure is a foregone conclusion under austerity measures; the denominator will be shrinking much faster than debt can be reduced.

Not that Chandler is contemptuous of European officials' efforts, he believes the Troika isn't so much trying to fix Greece as attempting to buy some time. On that front, Mission Accomplished, at least for now.

What the EU needs to do now is address the real problem. As Chandler sees it, a lack of competitiveness in Europe is the issue, "even in good times." Austerity as a cure for a lack of economic production is akin to "medieval doctors bleeding a patien,t" says Chandler. It accomplishes nothing except drain vitality from the patient.

Has the Greek deal bought sufficient time to fix the underlying issues or is the Eurozone heading entirely in the wrong direction? Let us know in the comment section below or tweet me @Jeffmacke.

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