A day after Greece won its rescue from the edge of an economic abyss, cash-strapped Spain and Portugal moved closer to plunging off the same cliff in a bleak new setback for Europe.
Analysts said the last-minute $145 billion bailout of Greece’s welfare state over the weekend was little more than a bandage on deep economic wounds threatening the European Union. The bailout failed to halt the euro’s steady slide to new yearly lows of around $1.31. The euro is down 12 percent in the past five months.
Economists warned that Spain’s and Portugal’s reckless government spending on social benefits, combined with a dismal failure to collect taxes in the two nations, could drown them, with little recourse for a bailout like the one Greece received from the EU and International Monetary Fund.
“You cannot solve a problem of too much debt and too much spending with more debt and more spending — it defies comprehension,” said investor Jim Rogers of Rogers Holdings. Asked whether Greece would default despite its life-preserver, Rogers told the BBC, “I doubt it in 12 months’ time — there is too much money being thrown at them right now. Can they default in five years? Yes, and they probably will.”
Jitters soared among some traders over the rising costs of borrowing in the open market for Portugal and Spain, both of which are putting the weaker EU nations in the red zone for bailouts.
“There’s a lack of conviction that this [bailout] is the silver-bullet solution,” said currency trader Tony Morriss at ANZ Bank. “The longer-term sustainability of this level of austerity has got to be open to question.”
According to EuroStat, Greece’s total government debt currently represents 115 percent of its annual economic output. In Portugal, government debt is nearly 77 percent of its GDP, while Spain’s total government debt is about 53 percent of GDP.
Spain’s stellar reputation has fallen sharply. Just two years earlier, it was the economic engine driving most job creation in Europe due to its housing boom, and was ranked the world’s ninth-largest economy, and Europe’s third-largest after Germany and France.
But excess benefits paid by governments of the three nations are causing too much strain on central banks, the IMF said in a report calling for overhauls of the government benefit payments.
In Portugal, the government pays unemployment for as long as 30 months, at 65 percent of original earnings.
Spain, whose unemployment rate of 19 percent is the highest in the developed world, pays up to two years of checks at as much as 80 percent of original wages.
Officials also are taking pot shots at tax officials in Spain, Portugal, Greece and Italy for allowing their nations’ tax cheats to create the biggest underground economies in the developed world, costing untold billions in lost tax revenue.
A report by the IMF said those four nations each have shadow economies amounting to about a quarter of their respective economic outputs. For Spain alone, the lost taxes exceed $100 billion. In the US, the underground economy represents about 8 percent of the US economy. paul.tharp@nypost.com