“The market’s attention is likely to turn to Portugal’s sovereign debt, which at current levels of interest rates and growth rates is less dramatically but quietly insolvent,” wrote Willem Buiter, Citigroup Inc.’s chief economist, in a report dated Dec. 1. “We consider it likely that it will need to access the European Financial Stability Facility soon.”
In spite of continuing pressure to convince Portugal to ask for a rescue fund, Portuguese Finance Minister Fernando Teixeira dos Santos said that the EU can’t just impose a bailout on his country.
“There are those who think that the best way to preserve the stability of the euro is to push and force the countries that at this moment have been more under the floodlight to that aid,” said Teixeira dos Santos to Jornal de Noticias in an interview. “But that is not the vision or the political option of the countries that are involved,” he added.
Portugal’s neighbor, Spain, the last member of an infamous PIIGS group (Portugal, Ireland, Italy, Greece) is also feeling debt pressure. Only the danger with Spain is that its economy is bigger than Portugal, Ireland, and Greece combined. If Spain requires a bailout, it would be a significant amount, bigger than the total 750 billion euros fund currently provided by the EU.
“The big elephant in the room is not Portugal but, of course, it’s Spain,” said Roubini. “There is not enough official money to bail out Spain if trouble occurs.”
“In case of an escalated debt crisis in Spain, the European Central Bank (ECB) must help to purchase its government bonds and also backstop its banking system,” said Willem Buiter in a statement. “Once Spain needs assistance, the support of the ECB will be critical,” he added.
In the face of all those debt troubles and upcoming bailouts, the euro is experiencing large fluctuations as investor confidence dips to and fro, leaving the EU economy vulnerable and unpredictable. It remains to be seen how long Germany and other EU powerhouses can leverage the bitter share of rescuing their less successful members.
In spite of continuing pressure to convince Portugal to ask for a rescue fund, Portuguese Finance Minister Fernando Teixeira dos Santos said that the EU can’t just impose a bailout on his country.
“There are those who think that the best way to preserve the stability of the euro is to push and force the countries that at this moment have been more under the floodlight to that aid,” said Teixeira dos Santos to Jornal de Noticias in an interview. “But that is not the vision or the political option of the countries that are involved,” he added.
Portugal’s neighbor, Spain, the last member of an infamous PIIGS group (Portugal, Ireland, Italy, Greece) is also feeling debt pressure. Only the danger with Spain is that its economy is bigger than Portugal, Ireland, and Greece combined. If Spain requires a bailout, it would be a significant amount, bigger than the total 750 billion euros fund currently provided by the EU.
“The big elephant in the room is not Portugal but, of course, it’s Spain,” said Roubini. “There is not enough official money to bail out Spain if trouble occurs.”
“In case of an escalated debt crisis in Spain, the European Central Bank (ECB) must help to purchase its government bonds and also backstop its banking system,” said Willem Buiter in a statement. “Once Spain needs assistance, the support of the ECB will be critical,” he added.
In the face of all those debt troubles and upcoming bailouts, the euro is experiencing large fluctuations as investor confidence dips to and fro, leaving the EU economy vulnerable and unpredictable. It remains to be seen how long Germany and other EU powerhouses can leverage the bitter share of rescuing their less successful members.
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