After Greece, Markets Will Eye Portugal: Economist

The debt crisis will continue to plague the euro zone even if Greece gets an agreement and its second bailout, with Portugal likely to be the next country to face the scrutiny of the markets, an economist told CNBC Monday.

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“The market feels that Portugal could be the next stage and Portugal would then be under pressure,” Bob McKee, chief economist at Independent Strategy said.

Greece remains in talks with the IMF and the EU on terms to secure its second bailout needed to avoid a default in March.

Latest reports from Athens suggest that the Greek government and its international lenders must agree the terms of the bailout before EU finance ministers meet next week.

Portugal is in a much better position than Greece, according to McKee, because it has a stable government, elected in June last year, and is committed to carrying through labor and fiscal reforms as well as having good relations with its international creditors.

“The government wants to carry through the program set by the Troika and a supportive electorate, but its economy is contracting,” McKee said.

GDP figures for Portugal from the IMF showed a contraction in nominal GDP for 2011 to -0.6 percent and the forecast by Deutsche Bank for the economy to contract further in 2012 to -1.9 percent.

Since the start of the euro zone debt crisis, Portugal has been grouped with Greece, Ireland, Italy and neighboring Spain under the PIIGS label for troubled peripheral euro zone economies.

Portugal is in a much better position than Greece and comparisons between the two are overdone, Gilles Moec, co-head of economic research at Deutsche Bank, told

“Portugal has met the fiscal targets, the proof is in the pudding and it also has a more solid political situation because the people were consulted on the adjustments that were needed,” Moec said.

The fiscal and labor market reforms have been strongly opposed by large sections of the Greek electorate. The latest reforms which are conditional upon receiving the next bailout are also being opposed with strikes planned by Greece's largest unions for Tuesday.

McKee believes that it is likely that Greece will fall “by the wayside, by the end of this year” and Portugal will then come under pressure.

“If there’s no growth it’s continually under pressure but the EU leaders and the IMF will come in with extra support for Portugal and they will try to ensure that Greece is a one off,” he added.

Portugal still needs a lot of support from the Troika for as long as the macroeconomic situation needed to be improved and must maintain a narrow path to ensure long term debt sustainability, Moec said.