Portugal, land of melancholy fado songs, accepted its miserable lot last night: it will have to swallow its pride and take up a euro bailout. There was no alternative. It was beginning to look impossible for the Portuguese to meet €4.9 billion repayments due in June, the month that a new election had been scheduled, triggered by a national reluctance for deep spending cuts.
A floundering low-growth economy, a lame-duck government: all the ingredients for the failure of the next vulnerable eurozone economy. The markets and other eurozone governments are likely to welcome Portugal’s change of heart, seen as the only way to contain the crisis. But in truth the whole 17-nation eurozone should be singing the blues. Ireland needs an extra €24 billion and there are persistent rumours that Greece will have to reschedule its debts. “If you look at their savings measures,” said the Hamburg economist Dirk Meyer the other day, “you will see that at least a third are mere air bubbles.”
Greece, Ireland, Portugal — three of the much-mocked PIGS. How long will it be before Spain starts to crumple? This crisis though cannot be confined any more to the euro-rim. Sovereign defaults and failures of European banks are soon going to expose the vulnerability of German banks that hold €46.5 billion of bonds from the governments of Portugal, Ireland, Greece and Spain. And there is a further €91 billion of exposure to the banking sectors of the PIGS. How long before the euro-rot starts to shake Germany’s wobbly Landesbanks?
The unease is now spreading out of the cloistered world of financiers and secret government crisis groups. Voters in Germany are turning against the whole European project. This week a poll has shown that only 55 per cent of Germans believe that the euro will remain a successful currency. In 2008, 78 per cent had confidence in it. Another survey has 31 per cent of Germans declaring the whole European Union to be a bad thing. Trouble is looming, not just in Portugal.