Such confidence should rest on a sustainable path of public debt and, hence, of the fiscal deficit, as well as on the sustainability of external indebtedness. The sovereign debt crisis results from increasing indebtedness, in a context of heightened risk aversion and higher scrutiny of the repayment capacity of indebted countries.
Investor confidence depends not only on the indebtedness level but also on the repayment capacity, which in turn depends on potential output growth and on the nature of the development process. That is, the confidence of foreign investors varies in direct proportion to the robustness of the Portuguese economy’s growth, or more specifically it depends directly on the sustainability of its development process.