Will Portugal turn into a second Greece?

Current economic developments in Portugal do not portend well. The Portuguese GDP is shrinking and the growth forecast for 2012 is gloomy - in the EU only the forecast for Greece is even worse (Figure 1). Moreover, Portugal is now having to pay double-digit interest rates on its bonds, its debt ratio exceeds 100 p.c. of GDP, its unemploy-ment rate is knocking on 15 p.c., and its current account deficit continues to remain high. All of these things not only indicate that Portugal is in a serious economic crisis. They also conjure up parallels to Greece's economic plunge. Thus, it is not surprising that many expect that Portugal will turn into a second Greece. But is this expectation really well founded? We think the answer to this question is no. A careful analysis of the crisis in Portugal shows that it is different from the crisis in Greece. Portugal has a better chance of avoiding economic collapse than Greece.