Financial Times
January 17 2011
The sequencing of Europe’s debt crisis is depressingly similar – the plot stays the same, with a slightly different cast depending on the country in the spotlight. Yet, judging by the run-up to the meeting of European Union finance ministers in Brussels on Monday, European officials seem intent on repeating it over and over again.
Last week, higher borrowing costs raised concerns as to whether Portugal could successfully tap the market in a regularly scheduled government bond auction. Fearing that the country would join Greece and Ireland in both losing access to new market funding and facing alarmingly high risk spreads on existing debt, the official cavalry jumped into action.
Portuguese officials sought to reassure the markets of their fiscal credentials. The EU talked of enhancing the flexibility of its rescue funds. The European Central Bank stepped up its market intervention, buying millions more Portuguese bonds. To make absolutely sure that the auction would succeed – and it did – China and Japan signalled their willingness to buy European debt instruments.
This is the same game plan that was used for Greece and Ireland. The probability of success is the same – very low.
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