Wednesday, April 6, 2011
At long last, Portugal pleads for EU bailout
The Portuguese government finally threw in the towel on Wednesday and petitioned the European Union for a bailout. Portugal follows suit behind Greece and Ireland, respectively, as the third EU member-state in dire need of economic assistance. Estimates suggest that the bailout would total approximately 75 billion euros, including an immediate influx of emergency aid totaling around 15 billion euros. The bailout comes after nearly a decade of economic hardship in Portugal, typified by annual growth rates of less than 1% and an unemployment rate that now stands at 11.1%. Hopefully, the EU bailout will pacify international markets that have been fearful about Portugal defaulting on its debts.
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7 comments:
with so many recent problems within the EU it could be a growing concern for the rest of the world as yet another country is in deep financial trouble. the question that is beginning to linger in the back of the EU's mind is when will this all stop and how many more countries are going to need a bailout. one reason the the EU should be concerned is because countries might start to develop a soft-budget constraints because they always assume that they can get bailed out. however it will be interesting to see what type, if any, economics policies the country will impose to help them bounce back.
so far with Greece and Ireland, the bailouts have not seemed to do much more than cause riots...... and along with the severe decrease in investment because of defaulting, I don't think any country sees a bailout as an attractive option.
While I agree that the bailout is not an attractive option as recent history indicates, it really doesn't seem like Portugal has another option; as the Prime Minister says, this is a last resort. I think, however, that the crises and bailouts in Greece, Ireland and now Portugal capture the difficulties and challenges of an international organization such as the European Union. The success of the Union as a whole is dependent upon the success of the individual countries and thus the failure of a few of the countries threatens them all. It will be interesting to see what happens in the near future if other nations in the EU go down this path as well and what the impact on the EU as a whole will be.
I agree that it does not look like there is any other option for Portugal. However this is a step into the direction where Greece and Ireland are now, where large riots and an unfavorable attitude from civilians. Slowly and steadily the EU member states are crumbling, it will be interesting to see what the future holds for the EU, and whether some members will continue to exist apart of this union.
This is true that Portugal was left with little alternative. The bailout was truly the last resort, as many say that Portugal actually should have asked for a bailout a year earlier. The economic assistance is crucial right now for Portugal, who is desperately in need of help to get their economy back on the right track. Bailouts are not something that any government desires, but Portugal appeared unable to promote economic growth on their own.
The economies of the all three countries were not doing so well before the crises either. So I don't think it's a surprise that Greece, Ireland, and now Portugal asked for help from the EU. Plus, it doesn't seem that the Portuguese government would have made it on its own as the government had already tried to cut its spending which only hurt Portuguese economy. In fact by cutting the government spending, the government made the situation even worse and as a result the bond market reacted with inverted negative yield curve which, as history shows, is an indicator of upcoming recession.
Although this is not an attractive option for the EU, I believe they will have soon to all agree for a bailout. As long as those EU countries are bound together by the monetary system, they will have to fear the risk of any of them failing to do well in the economy.
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