PORTUGAL AND SPAIN:SPANISH AND Portuguese leaders, with reinforcements from Brussels, are fighting a rearguard action to convince investors there is no need for further euro zone bailouts after the €80 billion- €90 billion rescue agreed for Ireland at the weekend.
“Absolutely not,” said Elena Salgado, Spanish finance minister, when asked in a radio interview yesterday whether Spain needed help from the European Union. “Spain is doing everything it has promised to do, with tangible results.”
Portugal is regarded by bond market investors and economists as next in line for a rescue after the bailouts of Greece and Ireland. But José Sócrates, Portuguese prime minister, was adamant there was “no connection” between the Irish rescue and Portugal’s problems.
“Portugal doesn’t need anyone’s help and will solve its own problems,” he said, insisting the country had a clear strategy to cut its yawning budget deficit.
As stock markets fell and the euro gave back early gains that followed the Irish deal, European officials tried to calm speculation about the next bailout.
Olli Rehn, European commissioner for economic and monetary affairs, said the problems of Portugal and Ireland were very different.
Portugal had taken very courageous measures to reduce its deficit and implement structural reforms, he said.
Jean-Claude Juncker of Luxembourg, who heads the group of euro zone finance ministers, said speculation against Spain and Portugal was not justified.
By yesterday afternoon, however, there was little sign of such reassurances making any impact on the financial markets. From Greece to Ireland and now Portugal, the crisis seems to be moving around the periphery of the single currency area.
Those three economies are relatively small. A rescue of Spain, however, would place enormous strain on the euro zone. The country is the fourth biggest economy in the area – larger than Greece, Ireland and Portugal put together.
Asked what Spain and Portugal should do to stop the so-called contagion, Edward Hugh, the Barcelona-based economist, replied: “Not do anything wrong.” He went on: “The only thing you can advise these people to do at this stage is to be absolutely frank and stick absolutely to what they say.”
Spanish and Portuguese ministers argue that they have done just that – although in the case of Portugal the actual budget numbers for the first nine months of this year showed the deficit had widened rather than narrowed – and have repeatedly declared their commitment to harsh austerity plans.
Austerity, though, is no longer enough to convince investors, in part because it has dawned on many of them that choking the life out of an already weak economic recovery may not be the best way to boost government revenues or repay debts. – (Copyright The Financial Times Limited 2010)