Well, this one wasn’t terribly difficult to predict. Portugal needs a bailout. The Portuguese Finance Minister is finally admitting that the country will succumb to the financial stress (via ZH & Negocios):
“The minister of the Finances understands that Portugal has to ask for aid already. In reply the questions placed for the Businesses Fernando Teixeira Dos Santos in writing affirm that “it is necessary to appeal to the available mechanisms of financing in the European picture”.
Fernando Teixeira Dos Santos considers that necessary Portugal to ask for aid, in a set of done questions in writing.
Businesses: Portugal must ask for aid already, as appeal in general the bankers and the economists? The dimension of the debt that if has that to pay daqui to one year it does not worry it?
Fernando Teixeira Dos Santos: The country irresponsibly was pushed for a very difficult situation in the financial markets. Before this difficult situation, that could have been prevented, I understand that it is necessary to appeal to the available mechanisms of financing in the European picture in adequate terms to the current situation politics. Such will demand, also, the envolvement and the comprometimento of the main forces and institutions national politics.”
Well, it’s time to start thinking about expanding the EFSF. As depression lingers on the periphery and austerity bites, it’s unlikely that these economies are going to improve much. That means the core has to be prepared for the potential backlash of Spain and Italy one day coming to them hat in hand. Will the bond vigilantes push the situation in these countries? It’s difficult to imagine that they won’t. Ultimately, it will be a test of how unified Europe really is. My guess is they’ll succumb to the pressure and be forced to ensure that no one defaults. The results would be too catastrophic for anyone to accept. So, in the meantime, we suffer through stagnant growth and hope that the periphery citizens don’t catch on to the fact that they’re bailing out German banks. The best outcome here is muddle through until some sort of unified plan is reached in the coming years. The worst case scenario involves public backlash from a periphery nation and default….The ripple effect of which would make 2010 look like a cakewalk.