By popular demand (assuming jtem is a reasonable proxy for popular demand), here’s CNJ talking out of his … other orifice … on matters of the EU and bailouts.

Portugal is getting a fat bailout. Their debt is out of control.

How is this possible?

Assuming growth trends continue forever is a silly, wasteful, even dangerous idea… unless you are assuming debt growth.

The exponential curve fit for GDP is approximately 4.9% year over year growth; 4.76% is the continual rate. This seems reasonable given that Portugal had a whopping 12% growth in 2001 (Too outlier? How about 9% growth in 2007). They averaged 5.3% annual growth from 1997-2007. Remember, averages of percent growth are meaningful (LIES!). What I’m saying is that these two fits are reasonable trendlines, and it is reasonable to carry them forward from the fit period two years to see how much the actual data bucked the trend.

Note that Portugal had a decent amount of debt, peaking at just under 71% of GDP before the crisis. But notice how rapidly it took off on a percentage basis when the crisis hit. GDP fell a lot. Tax receipts didn’t need to fall a lot and deficit spending didn’t need to be boosted too much before the debt-to-GDP ratio looked horrible. In fact, the debt growth stayed pretty close to trend, so stimulus spending or tax receipt shortfalls isn’t actually a good scapegoat for Portugal.

If you want a scary harbinger, the debt growth was 6.6% year over year during the fit period. Not bad when they were growing at 9%. Completely unsustainable when they were trending 4.9%.

This graph was constructed from World Bank data on Portugal (direct download link).