Europe gives Portugal ‘time to adjust’ and lets fiscal targets slip

It is not at all clear where things in Portugal are headed. The economy is in a deep depression. Yet, sovereign bond yields have come down considerably. The Troika is even relaxing Portugal's austerity target, hoping this will drive yields down further. Will the strategy work though?

If you recall, as the year began, the Troika was demanding even more austerity from Portugal despite the fact that its austerity budget called for the highest tax increases in Portuguese history. The problem was that Portugal had a 4 billion euro fiscal gap to close and it was coming to the end of the life of its existing bailout program. This year, being a year of general elections in Germany, the prospect of more bailouts created huge problems for Germany's ruling coalition. Just yesterday, Wolfgang Munch...

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