RealClearMarkets - You Can't Tax Your Way Out of a Debt Crisis: "That day [April 22], Portugal announced significant tax increases, including imposing a 20% tax on capital gains. Their goal was to reassure lenders and reduce their borrowing costs. Instead, the exact opposite happened. The day that the tax increases were announced, interest rates on Portuguese bonds increased."
This article describes tentatively how the market is calculating how much debt per GDP a nation can handle. Important is how much revenue in tax the nation can bring in. Obviously I'm not an expert on this, but it is interesting to note that there seems to be a need for psychological paramenters in the calculation. It is not just math. Different countries can take on different amounts of tax before they complain.
My question is if Portugal can do this calculation since they tried to raise tax in the fashion they did with the above result?
What apparently also is important in this article is that growth should be higher than the interest rate on the bonds. Then a country can borrow any amount. How should the PIIGS countries raise their competitiveness and growth rate as long as they stay in the Euroland? Many people write that the austerity demands from the EU now will lower the potentials of the countries instead.