Wall Street Journal
April 8, 2011
Is that it? Does Portugal's application for a bailout mark the end of the euro-zone's government debt crisis?
The money's available to tide Portugal over for a couple of years. Greece and Ireland are already bailed out. Investor sentiment in Spain has improved in recent months. So why worry?
On the face of it, the bailout request doesn't change the calculations very much. The country's slow slide away from market finance was widely anticipated even before elections were called after the government failed to push through austerity measures.
The government looks like it has enough cash to meet bond repayments this month, but couldn't find—at a nonprohibitive cost—the €10 billion ($14 billion) it needs in June to meet bond maturities. Portuguese banks, which had been loading up on government debt, this week shouted "Basta!"
Practically, getting money in time for June requires negotiations to start soon. To leave it until after the June 5 elections would have been too late. There are worries in Brussels about whether a caretaker government can negotiate the tough economic conditions to accompany the bailout. But there are also signs that the main political parties will agree to negotiations going ahead, possibly through the auspices of President Aníbal Cavaco Silva, who, given he's a figurehead, looks set for a busy few months.
Yet, digging a little deeper suggests caution. Many analysts think that Greece will need more bailout money in a year or so—even in the unlikely event that it meets its budget target. And later, even though the government denies it, they think it will be forced to restructure or default because its debt burden is too heavy.
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