There are now three in the beggars queue in Europe, with Portugal overnight saying that it wants a bailout.
Prime Minister Jose Socrates said in an address to the country last night “the government decided today to ask the European Commission for financial help”.
That was after the country’s finance minister confirmed the move in replies to questions from a Lisbon newspaper about a possible bailout. The move by Portugal came a day before the European central bank is expected to raise rates by 0.25% to 1.2%, heaping more pressure on Portugal and the other suffering smaller economies of Europe, Greece and Ireland.
Moody’s Investors Service on Tuesday downgraded Portugal’s ratings by a notch from A3 to Baa1 and warned that it expected the country to have to seek outside help to resolve its debt problems.
That has now happened and market estimates suggest Portugal could need €80 billion. Ireland received €85 billion from the EU and International Monetary Fund and Greece got €110 billion from both.
With doubts that Portugal would be able to meet a €4.2 billion bond repayment and interest payments due on April 15, and another €4.9 billion due in June, the pressure on Portugal proved too much.
So the P in PIIGS has gone, following the I and the G: Greece and Ireland were bailed out last year in at times acrimonious talks that remain unfinished in the case of Ireland’s €85 billion package.
Spain and Italy are left standing, with commentators confident they won’t go the way of the others.
If Spain needs a bailout, there’s now not enough money left in the pot in Europe for that.
But Spain remains in doubt, despite an improvement in its banks and attempts to force the weak domestic savings banks to merge and cut their bad debts.
The government has cut next year’s economic forecasts as unemployment is predicted to remain above 16% for several years more. Growth will be 1.3% this year, but the central bank says it will be just 0.8%. The government says growth will be 2.3% next year, the central bank says 1.5%.
The unemployment rate, already the highest among industrialised countries, will hit 19.8% this year instead of the 19.3% as previously forecast. The rate is predicted to fall to 18.5% next year, 17.3% in 2013 and 16% in 2014. All the estimates were higher than previously forecast by the government.
Italy is currently transfixed by the start of the under-age s-x charges against Prime Minister Silvio Berlusconi with talk of “bunga bunga” parties.
Portugal was considered next on the list, but denied it would fail and turned and twisted to stop what many thought was the inevitable happening.
The request ended the country’s two-week struggle to avoid the unpalatable after the minority government resigned when opposition parties rejected an austerity budget (the fourth in a year) that would have cut deeper into the deficit and perhaps given the country more time to adjust without help.
But since that resignation, the country has seen rates on its 10-year bond peak above 10% as investors grew scared that it would collapse. A short-term refunding move yesterday morning was a last-ditch attempt to keep the inevitable at bay and on Tuesday some of the country’s big banks said they might stop buying government debt if a bridge loan from Europe of $US21 billion wasn’t sought.
The irony is that the same government that resisted a bailout when in government, accepted the need for one two weeks into caretaker mode.
“In this difficult situation, which could have been avoided, I understand that it is necessary to resort to the financing mechanisms available within the European framework,” said finance minister Fernando Teixeira dos Santos.
But the bailout request won’t be made immediately, but the minister said the country will “honour its financial commitments and will take the necessary steps to do so”.
“The country was irresponsibly pushed into a very difficult situation in the financial markets,” the minister said, referring to the defeat of the minority socialist government in a key vote on austerity measures.
“Faced with this difficult situation, which could have been avoided, the outgoing government would have to seek financial assistance from the EU,” he said.
Greece continues to face domestic pressure to restructure its huge debts. But the government this week rejected such calls.
It doesn’t want to upset markets or damage its banks.
Greece’s banks are exposed with a significant share of the state debt that has exploded to over €300 billion ($A410 billion).
A planned Greek borrowing blitz this year has been postponed because the cost — nearly 16% for two-year loans and over 12% for 10-year bonds, are levels that are unsustainable.
But the finance ministry says that because of a deeper-than-expected recession, the 2010 deficit will still be higher than the official estimate of 9.4% of GDP.
EU data agency Eurostat will release the final figure on April 26 but Greek media are already bracing for a deficit of more than 10%.
The target is 3%. Greece won’t get there for years, nor will Ireland, which last week revealed €24 billion in new aid for the country’s banks.