It is difficult to see how a Portugal bailout can be avoided, however much the government might wish it. Many investors and analysts expect a rescue package, giving it a self-fulfilling character. True, the country may beat its deficit target for 2010 of 7.3% of gross domestic product, but a chunk of the credit for this goes to the one-time transfer to the state of Portugal Telecom's pension fund, worth 1.5% of GDP...Ideally, a Portuguese bailout would be accompanied by measures aimed at preventing the crisis spreading to Spain.Spreading? What spreading? They're all in debt way over their heads and they just keep borrowing more and more and more. What's to spread? They're insolvent. They didn't get that way overnight and it's not like investors needed to see Ireland and Greece fall apart to figure out that this was a bad thing. They're down another 7.3% this year. If they want this thing to stop "spreading" then they need to run a surplus and pay off some of that debt.
Monday, January 10, 2011
On Crises Spreading
I love the use of the word "spreading" to describe the Euro debt crisis.