Aside from the well-publicized episode of Greece's ongoing debt crisis, Bloomberg.com reported the following concerning Portugal:
Portugal Suffering Greek Contagion Pressures EU Bonds (Update1) - Bloomberg.comWith a higher debt burden and a slower 10-year growth rate than Greece, Western Europeís poorest country is being punished by investors as the sovereign debt crisis spreads. The risk premium on Portuguese bonds rose to more than double the past yearís average this month. Portugalís credit default swaps show investors rank its debt as the worldís eighth-riskiest, worse than for Lebanon and Guatemala...
While Portugalís public debt of 77 percent of gross domestic product is on a par with that of France, the burden including corporate and household debt exceeds that of Greece and Italy, at 236 percent of GDP. The savings rate is the fourth-lowest among 27 members of the Organization of Economic Cooperation and Development, according to the Paris-based groupís data.
One of the key dynamics in play is confidence. Portugal is currently experiencing rising risk premiums on account of diminishing confidence. Down the road, if the U.S. fails to develop and implement a credible fiscal consolidation program (discretionary spending reductions, mandatory spending/health-reform, modest tax hikes), the U.S. could see confidence begin to deteriorate in its fiscal sustainability.
To put things into perspective, the U.S., the broadest measure of U.S. debt (domestic non-financial debt) amounted to 240% of GDP in 2009 Q4. Despite deleveraging from the severe recession, household debt remains at an elevated 94% of GDP. The federal debt is projected to rise rapidly according to CBO to 90% of GDP within a decade. Barring fiscal consolidation, and also improved household saving, it would not be out of the question for the U.S. to begin to experience symptoms of growing concern about its fiscal situation (relatively higher long-term yields, possible failed debt offering on one or more Treasury auctions, emerging demands that it price Treasuries in foreign currency to avoid partial default via inflation, etc.) some time over the next 5-10 years. At the same time, its being placed on negative outlook by the major ratings agencies even sooner is probably more likely than not, as in the short-run ideological considerations (Democratic positions on entitlement spending/Republicans also now treat Medicare as untouchable; Republican positions on taxes) appear greater than commitment to difficult pragmatic fiscal consolidation choices.