The Wall Street Journal says that Portugal’s budget report for 2010 may be wrong. The paper writes that “The country’s statistics office has been reviewing its 2010 accounts after the EU’s Eurostat agency observed that Portugal hadn’t included a €2 billion ($2.8 billion) cash injection into Banco Portugues de Negocios.”
A year ago, Greece had similar problems keeping its books.
Eurostat and inspectors from the IMF and EU can only do so much to examine the financial statements of troubled nations in the region, let alone the balance sheets of their banks. Stress tests of banks are about to begin, and the effect may be that more financial firms will have to be nationalized, which will add to sovereign debt burdens of their home countries. Credit rating agencies will be tempted to downgrade some of the sovereign paper of these countries, again.
Nations which have received aid are already going through it quickly. Ireland has spent 20% of its 85 billion euro IMF-EU bailout. The single greatest concern about Greek debt is that it does not have enough money to refinance its paper in 2013.
The nightmare of the financial crisis in Europe could be made much worse if there is a suspicion that the figures from countries like Portugal are wrong. Bailouts have to be based on accurate data. Funds are meant to, among other things, raise the confidence of international capital markets investors. That causes some of these investors to consider the sovereign debt of some nations as reasonably safe investments.
The EU nations which supply most of the capital for bailouts–Germany in particular–have had enough trouble with voters who do not want to see their tax dollars leave their countries. Sloppy bookkeeping will only make the effort to extract bailout capital even more difficult.
Douglas A. McIntyre
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