Portugal: A bailout won’t help anyone
11 enero 2011
Jornal de Negócios
Under pressure from the markets and certain European countries to accept a bailout, José Sócrates’ government must stand firm if it is to restore confidence, insists a Portuguese editorialist.
The recent Greek and Irish experiences have highlighted the fact that intervention to safeguard the euro has simply served to create new and more serious problems that threaten the very life of the single currency, and the Portuguese government would do well to take this into account in its bid to avoid what would be the worst possible outcome. In the course of 2010, Eurozone leaders learned a lot about the potential pitfalls of the solution to the debt problems encountered by certain European countries. And it is in this context that we should understand the successive declarations of support for the measures adopted by Portugal to fight its public spending deficit. Intervention, initially in Greece and thereafter in Ireland, showed that the model used to manage the debt crisis was feeding fears of a domino effect that raised the spectre of the collapse of the Eurozone.
Before Irish bailout, already a list of further victims
Before Dublin had even accepted a bailout, analysts and economists were already hard at work establishing a list of further victims: Lisbon was to be next, then Madrid, and then Rome or Brussels. Having anticipated an inevitable chain reaction, they were quick to come to the conclusion that we were about to assist at the collapse or the break-up of the Eurozone and the fall of the single currency, which would permanently damage the structure of the EU. Now that they are aware of the future threats to a project that has given Europe more than half a century of peace and prosperity, it is reasonable to assume that European leaders and civil servants have set about revising the strategy that underlies their approach to the financial issues posed by some Eurozone countries including Portugal. And it is in this context that a recent article published in the German weekly Der Spiegel, which asserted that Berlin and Paris wanted Portugal to make an official request for financial assistance so as to reduce the risk of contagion to Spain, came as complete surprise.
Lisbon can do little to silence the prophets of doom
However, the story was later officially denied by the German government and there has been nothing else to suggest that in fact represents the view of European leaders. On the contrary, what appears to have emerged is a growing lack of confidence in the strategy based on intervention by European funds and the IMF to ward off the possibility of contagion. The latest financial storm to hit Portugal was a direct consequence of the announcement of two further bond issues on 6 January, which prompted financial institutions to explore the possibility of making additional gains by buying new bonds at higher rates. Political leaders cannot and should not facilitate this type of profiteering by making statements that aggravate the situation not only for Portugal but also for the euro. The government in Lisbon can do little to silence the prophets of doom, but Prime Minister José Sócrates can achieve a lot by demonstrating his determination and perseverance in tackling public spending. The government must do all that it can to ensure that by February, at the latest, we can be certain that this year’s forecast for public spending will be respected. Then and only then will we be able to rely on European solidarity and a European solution – without the assistance of the IMF.