Thursday 22 February 2018

What the Portuguese bailout means for the Irish economy

Portugal is set to become the third country forced to seek an EU/IMF bailout. George Garvey explores what it means for Ireland.

Q: Why does Portugal need a bailout?

A: Ever since joining the single currency in 1999, Portugal, one of Europe's poorest countries, has experienced the lowest growth in the eurozone. Meanwhile, its domestic costs have soared, resulting in a huge loss of international competitiveness.

With the recession after cutting tax revenues, Portugal has found it increasingly difficult to borrow on the international bond markets. Yesterday yields on 10-year Portuguese government bonds climbed to 7.9pc, while ratings agency Fitch cut the country's credit rating by a further two notches.

Q: Why now?

A: Portugal has two large bond issues coming due for repayment this year, one of €4.5bn next month, with a further repayment of €6.95bn in June.

Q: How much?

A: Most analysts reckon that any Portuguese bailout will be at least €70bn, and possibly as much as €80bn.

Q: What does a Portuguese bailout mean for the interest rate Ireland is being charged?

A: The escalating Portuguese debt crisis means that the Irish bailout interest rate has been "parked", at least until the results of the Irish bank stress tests become known next week.

Q: Is this a good or a bad thing?

A: The need for a Portuguese bailout, coming on top of last year's Greek and Irish bailouts, reinforces the need for a comprehensive solution to the problems of the heavily-indebted countries on the periphery of the eurozone.

Q: And what is a comprehensive solution likely to mean for Ireland?

A: Ever since the Greek debt crisis first erupted in October 2009, the eurozone has been inching towards some sort of fiscal union to complement the monetary union which was created in 1999.

Irish Independent

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