Editorial
January 12, 2011
Whatever else the €177 billion bailouts of Greece and then Ireland may have accomplished, they haven't stopped contagion within the euro zone. Take Portugal. Lisbon is due to auction €1.25 billion in government bonds today, and the government estimates it will need to raise some €20 billion in 2011. Ten-year Portuguese bonds currently yield around 7%, some four percentage points higher than German bonds and a level that many market watchers believe makes a bailout of Portugal inevitable. Yesterday's announcement from the Portuguese Central Bank that it expects the economy to contract this year didn't help either.
In keeping with the pattern in Greece and Ireland, everyone so far denies that a Portuguese bailout is in the works. Prime Minister José Socrates insisted again Tuesday that Portugal didn't need any help. But as the world saw with Ireland in December, whether a euro-zone member thinks it needs help is beside the point. What matters is if Europe's big countries decide Portugal should accept it in the interests of the single currency as a whole.
Yet the bailouts aren't helping. By removing the weakest members of the euro-zone from the public markets one at a time, they expose the next-weakest to increased pressure. No one wants to be the tail in a game of crack-the-whip, and investors don't necessarily want to be exposed to the next country to fall into danger of default.
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