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Portugal workers protesting... |
Just as the market closed last week, the Portuguese
constitutional court decided that several provisions of the country's 2013
budget were not constitutional. According to the high court, cuts in wages and
pensions of public employees were unfair (there's that word again) because they
targeted only the public sector. The court rejected plans to cut one of the 14
paychecks that public workers usually get each year and to slash 6.4% from
pensions for retirees.
This coincided with the government warning that
the court's decision would put into question the country's
ability to fulfill its €78 billion international bailout program, which in
turn would send bondholders of Portuguese sovereign debt scrambling for the
exits as suddenly the country may find itself in the ECB's "dunce"
corner, with Draghi preparing to pull a "Berlusconi" on a government
which can't even whip its judicial branch in line. However, of more immediate
concern is how will the government now plug a hole of up to €1.3 billion in its
€5.3 billion 2013 budget. A solution has, luckily, presented itself: bypass the
unconstitutional provisions by paying government workers not in cash, but in
government bills!
The
Portuguese government is considering a plan to pay public workers and
pensioners one month of their salary in treasury bills rather than cash after a
high court ruled out wage cuts, a person familiar with the situation said
Sunday. "This is one of the ideas
being considered," the person said. By paying one month of salary in
T-bills to public workers and pensioners, the government would save an
estimated €1.1 billion in expenses, narrowing the budget gap significantly.
Since
the Portuguese government can’t print money as they operate under the ambit of the euro which
is managed by the ECB and Eurosystem (central banks of the Eurozone), then
they will simply “print” debt papers.
Debt
papers will possibly attain traits of “moneyness” or exchangeability. Since
T-bills will be used by public employees and pensioners for exchange of goods
and services.
More
debt leads to higher taxes which will pose as a hindrance to productive
commercial enterprises.
More
sovereign debt issuance can be used as collateral by the Portuguese government
to secure loans from the ECB, or that debt may be monetized by the ECB. So the
Portuguese government will likely be incentivized to print more debt papers.