[bainsfather]

The ECB buying government debt, and pledging to buy as much as was needed, wasn't the main cause then?

Global interest rates being historically low isn't a cause now?

No, you say, it is because of something that was the same before, during, and after the main crisis point - that promises and contracts were not broken. (Not that promises or contracts need necessarily have been broken had other courses of action been taken).

Meanwhile e.g. Germany, who broke the rules on borrowing early in the life of the Euro, has of course suffered economic collapse, and cannot borrow money at any interest rate. And Iceland, they are back in the stone age now.

[ptaipale]

Global interest rates are low, and they are approximately the level at which Portugal can borrow, because there is some trust that it behaves normally.

If Portugal behaved like Greece, it couldn't borrow at those rates from the market. Greece can't, without others underwriting the debts.

Compare Greece: http://www.tradingeconomics.com/greece/government-bond-yield

to Portugal:http://www.tradingeconomics.com/portugal/government-bond-yie...

Notice how the figures have same form, but quite different scales.

[bainsfather]

In this sub-thread, we were debating whether austerity in Portugal was a success.

The best comparison would be to Portugal had it and the EU/ECB adopted different policies. Admittedly this is hard since we do not see that.

You are choosing to compare Portugal to Greece. Greece alas is a complete basket-case. Starting in a much better situation than Greece, and claiming success for policies that leave you less worse off than Greece, is a very low bar.

At the same time, you argue that we can never compare Portugal to Iceland - not even as a counterexample to 'a country must not break promises or contracts, otherwise the economy goes down the drain'.

[ptaipale]

Iceland is not a very useful counterexample for "a country must not break promises" - or more precisely, "is it not wise for a country to break trust in its policies" - because I can't see what promises Iceland would have broken.

Why the Iceland case is different - and Iceland has not lost serious trust in eyes of lenders - is that Iceland did not run a serious public deficit and it did not fill such a deficit by borrowing.

Still, the economic crisis brought a shock to Icelandic economy in form of huge devaluation. If Portugal would have gone from EUR to its own currency, how much would it have devalued?

ISK halved its value practically overnight: http://www.tradingeconomics.com/embed/?s=usdisk&d1=20050101&...

[galfarragem]

As an anecdote, according the same source, Portugal nowadays can even borrow (Government Bond 10Y) at a lower interest rate than US.. (1,72% vs 1,90%)

[galfarragem]

We can never compare Portugal with Iceland. As an objective example:

Portugal needs energy from the exterior to survive. Would anybody trust us enough to sell energy (at a reasonable price), not knowing if we would pay it [1]? By the other hand, Iceland doesnt't need the exterior as much as we, they can afford to not be trusted [2].

[1] Or we could associate to Russia, like Syriza tried..

[2] 'By harnessing the abundant hydroelectric and geothermal power sources, Iceland's renewable energy industry provides close to 85% of all the nation's primary energy - proportionally more than any other country - with 99.9% of Iceland's electricity being generated from renewables.'

http://en.wikipedia.org/wiki/Economy_of_Iceland

[ptaipale]

Agreed, the Iceland comparison is a red herring that is repeated often but which completely bypasses how different the Iceland economic crisis was.

Iceland never had much deficit. It has a healthy public economy. Iceland had a boom of financial industry which then went bust, but it wasn't a significant part of the country's real economy.

When the banks went bust, foreign customers who lost money in the crash insisted that Iceland, the country, should compensate. The government felt they didn't, because it was not the Icelandic government that was in bankruptcy. And that was fine.

The public deficit in Greece (and, to lesser extent, Portugal, Ireland, France, Italy and now Finland) is a very different problem.

[ptaipale]

I must add that I disagree about Iceland not needing the exterior. Iceland is a very, very small country on a remote, barren island with few natural resources, and is hugely dependent on imports to make it livable in the modern sense. Iceland definitely needs trade with the exterior to survive. I would say Greece is more self-sufficient for many important things (like food) though not for geothermal energy.