The mother of all tooth aches

Our dear prime minister has admitted that public deficit next year will be 5.2% of GDP.  In itself a staggering value of ~8.5 billion Euros.  Roughly 10.5% of the state budget.

I have even been generous here using the official EU numbers for the expected retraction of the economy next year of 3.4%.  The real retraction will be larger.

Our goal for the deficit next year is 4.5%.  This year it is 5.9%.  According to the minister of finance we will reach only 4% this year by magic by the creative accounting of throwing the banker's pension fund into the black hole of public finance.

The  pension fund was 6 billion euros i.e. ~3.5% of the GDP.  How that adds up to 8%, I cannot understand.  8% is was what the prime minister also admitted the deficit would have been this year with out the theft gift - and 3.5% plus 4% is only 7.5%...

To put everything a bit more into perspective.

• The real deficit of this year compared to last year are not far from each other.  Last year was 9% and bit
• The real deficit with a large number of austerity measures has thus only been lowered about 1%
• The 6 billion euros bankers fund was around 7% of state "income" this year
• The next 10 years (I believe it is many more), the state will have to find 0.6 billion euros to pay the banker's pension.  As the fund is in the black hole...  
• BTW this is pointed to as one of the reasons the 2012 budget is already invalidated.
• We are not even in 2012 yet!
• If you looked at the pension fund as loan - as would be proper, then the interest rate is 10%.  And perhaps much more.

Of course added to that an untold number of debts will have to paid every year.  The Troika loan, the other state loans, the public companies continuing debt spiral and so on.  Just the interest rate that will have be paid every year is incredibly large.  The interests of the Troika loan alone will require 10% of the entire state budget.

Furthermore what about the problems of a systemic world wide crisis, an even worse crisis in the EU, a retracting Portuguese economy (and it may get real ugly), PPPs, a broke social security (the money for pensions has been spent) and zero measures to liberate the companies from the state - still no structural reforms?

Portugal is broke.  The country would be better off admitting it now (everybody but the politicians know it).  Portugal should seek help.  Get a hair cut like Greece (currently negotiations have reached 65%) and be happy it not called a default - a state bankruptcy - though I can personally see no difference.

Unless Europe gets it act together it would also be better for Portugal to leave the Euro entirely.  The Portuguese economy is simply not up to it.

It is like a tooth ache.  You can ignore and not go to the dentist but it will only get worse in the end.  The people has suffered sufficiently because of a small group of corrupt criminals.  It is a time for drastic measures.

Pension fund robbery or a poisonous gift?

Portugal has to me an unknown number of pension funds.  Social security was only created after the revolution and all large companies had their own pension schemes.

When social security was created, for reasons beyond logic the separate pension schemes were kept.

Perhaps for the best as the social security has spent some of the money reserved for pensions (and "bought" Portuguese state debt of dubious value) and count on current and future income to be able to pay future pensions.  Until eventually absorbed by the social security the pension funds had money in them.   Friday, one of the last?, the bankers pension fund was handed over to the state.

For once I actually feel a little bit sorry for the bankers.  They will eventually as everybody else live from one day to another, as their pension money will be devoured by the state.  Also they will in the future see drastic cuts in their pensions - just like everybody else.  For now, though, they are fine as:

• For the state to be allowed to take the money the bankers have been guaranteed pensions are not touched by austerity measures
• The banks will continue to decide how much the bankers going into retirement will receive.  This point is incomprehensible as it suggests the banks will continue to stay outside the normal rules of society and social security.

The banker's pension fund had an amount of around 6 billion euros.  I.e. more than 3% of the annual GDP.

It is difficult to get a clear answer but the following are the apparent facts

• Without this one-off injection - Portugal would not be able to meet the max 5.9% state budget deficit demand.
• Some of the money will be spend right away
• Some of the money will be spend to assure then bankers pension the coming year
• Once again the politician state and swear:  This will be the last time we do this trick (perhaps because there are few pension funds left - but the military still has a large one...)
• Some of the money will be saved for future expenses

The last fact is stated by the Portuguese prime minister.  It is doubtful in my opinion.  Because the statement infers a third will be saved.  I do not believe it as the money is needed now.

What is interesting and extremely worrying:

• The payment from the banks (the pension fund) includes government bonds.  I.e. debt owed by the Portuguese state.  They will probably just be absorbed - the effect will be to absolve the debt.
• If the max. deficit of the state could not have been met without this injection - the public debt would then have ended up with an additional 9% (5.9% plus 3%+) of the the GDP this year?
• The requirement for next year is 4.5%.  There will be no more pension funds to rob.  The effort is not only one from 5.9% to 4.5% but actually from 9% to 4.5%?  A draconian cut.  No wonder the prime minister speaks of possible further austerity measures in 2012.
• The 6 billions euros correspond to nearly 10% of the annual income of the state.
• Robbing the money from the banker's pension fund will leave little money to pay future pensions.  Consequently, the next 80 years or so - money will be missing from the budget and will have to found elsewhere through taxation or by not paying (as much) pension. We have now a new debt for the state.
• I wonder why the banks handed over the pension fund without a peep from the banks.  They are usually extremely loud when not satisfied. Obviously because they will save money by doing it.  Ergo the public will now have an added burden here as well.  This is analogue to a loan with interest - probably a high one.

What a mess.  It looks bleak for 2012 and beyond.

Two sources (Portuguese): Passos: "Não há folgas, nem almofadas" and Ricas Pensões