PER 2015
Furthermore, when Portugal joined the EU, its national debt was below the 60% mark that was put in place by the Maastricht Treaty, therefore it was in the confines of the treaty criteria and accepted into the EU. But, Portugal was also participating in accounting fraud as well as Greece. By 2009, its national debt rose to about 83.7% of GDP in 2009, at the start of the debt crisis. In January 2010, bond yields 67 rose in value making it hard for Portugal repay bonds. Portugal had low GDP growth and a persistent deficit as a result of deficit spending, which contributed to soaring public debt. Between 2009 and 2011, Portugal’s government gross debt rose from 83.7% of GDP to 108.3% of GDP. In April 2011, Portugal requested a €78 billion bailout package, following the introduction of a new austerity package, following the same conditions that were placed for other member states in debt, in a bid to stabilise public finances. They were third party to request a bail-out from the Troika. However, Portugal’s government gross debt rose to 123.6% of GDP, in 2012, after the bail-out package that was received from the Troika. Whereas, the Greek and the Portuguese sovereign debt crisis was caused by over-spending by the government, the Irish sovereign debt crisis was due to Irish banks fuelling a property bubble and cheap credit which caused more borrowing up until the credit crunch in 2007. Irish banks lost €100 billion in defaulted loans, by property developers and home –owners, made in the middle of a property bubble. This bubble ended up bursting in 2007 causing the government gross debt increase from 25.1% of GDP to 44.5% of GDP and rose steeply until 2013. With an increase in bond yields and debt, the Irish government sought assistance from the Troika, resulting in a launch of a €67.5 billion bail-out loan from the Troika and €17.5 billion from Ireland’s own government reserves. On the other hand, Spain had a low debt level compared to the rest of the EU members, with of public debt of 61.5% of GDP, which was 20.9% less than Germany. Spain avoided debt through its tax revenue from the housing bubble. This tax revenue came from stamp duty tax 68 on property being sold during the bubble and VAT 69 on rawmaterials being bought to produce more houses for the growing demand. This allowed their government to spend without the chance of an increasing debt levels. However, when the housing bubble burst, Spain spent a lot of its money on bailing out banks that had suffered large losses in investment as a result. Spain didn’t anticipate the amount of money they would need to bail out their banks. Banks required €59 billion in additional revenue to offset losses from the banks’ investments. The combination of the bail-outs and the economic downturn increased the government deficit and debt levels. Spain’s 10-year government bonds reached an interest rate spread of 7% and faced difficulties paying off the bonds. In June 2012, Spain was granted a €100 billion package to refinance its government and fix its debt levels. Furthermore, the rising debt levels experienced by the member states meant that vast amount of money had been distributed in the form of bail-outs, by third parties, this has meant countries like Germany, with the strongest economy, have had to contribute to lending money to countries in need because of the spending spree they went on to get into so much debt. Countries like Germany were suffering because of this.
67 The amount of return an investor receive on a bond. 68 Tax placed on financial documents on a transfer of assets or property 69 Value-Added Tax, an indirect tax placed on a good to add value.
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