Munich Personal RePEc Archive

Portugal Ought Not Restructure Its Debt

Rodrigues, Pedro G. (2012): Portugal Ought Not Restructure Its Debt.

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Abstract

At the epicenter of the international financial crisis is a debt crisis where low-quality assets and the slowdown in economic activity have made creditors worldwide wary of the ability and willingness of debtors to comply with their obligations. In this context of indebtedness, now perceived as excessive, where expenses on interest are growing, some defend debt restructuring to alleviate this burden. This brief note aims to contribute towards the current debate with an analysis of the benefits and costs related to the possible but uncertain unilateral decision by Portugal to alleviate its expenses on interest. Considering i) the most recent international evidence that suggests that in the majority of the cases a debt restructuring is accompanied by a banking crisis and/or by a currency crisis, ii) that Portugal does not meet any of the cost-minimizing criteria, and iii) that an exit from the euro would probably be inevitable as a result of such a decision, we conclude that Portugal ought not restructure its debt.

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