Dan White: Why Portugal's financial crisis could spell good news for our bailout rate

Q: Is the Portuguese bailout good or bad news for Ireland?

A: Almost certainly good news. With Portugal now set to join Ireland and Greece in the eurozone's dunces' corner, our EU "partners", particularly the Germans and French, will find it much harder to argue that this country's problems are somehow all our own fault.

This will force the eurozone to devise a permanent solution rather than cobbling together yet another ad hoc response to the crisis.

Q: Does the Portuguese bailout improve Ireland's chances of cutting the interest rate on its bailout?

A: When we signed up for the EU/IMF "bailout" last November the EU insisted on charging us a 5.8pc interest rate on its €45bn portion of the deal.

When one considers that the EU is borrowing this money at just 2.9pc, that's a Shylock rate. Enda Kenny hoped that he would be able to secure a lower rate at today's meeting of EU leaders but the Portuguese crisis has pushed the Irish interest rate off the agenda. However, with the Portuguese crisis likely to force European leaders to devise a pan-eurozone solution to the problems of its peripheral countries, a lower Irish interest rate is still on the cards.

Q:What does the Portuguese bailout mean for the Irish banks?

A: With the results of the stress tests on the Irish banks not due to be published until next week, it never seemed like a good idea to seek a lower interest rate this weekend: Far better to wait until we have a far clearer view of the extent of Ireland's problems.

Early indications are that the stress tests will reveal that the Irish banks' mortgage loan books are in much worse condition than had previously been realised.

Q:What does the Portuguese bailout mean for our bailout?

A: The Portuguese bailout, which most analysts expect to be in the region of €80bn, will strain the existing resources of the European Financial Stability Facility, the EU/IMF bailout fund set up after the Greek crisis last May.

While the EU and the IMF agreed to commit up to €750bn to the fund, the EU only coughed up €250bn of the €440bn it had agreed to provide.

With the EFSF having already agreed to lend Greece up to €110bn and Ireland €67.5bn, a Portuguese bailout would have left it with insufficient resources to deal with a crisis in another eurozone country.

Expect the EU to agree to pony up the full €440bn at today's meeting.

Q: Will that be enough?

A: That's the €64bn question. While a €750bn fund would be more than enough to cope with the problems of Greece, Ireland and Portugal, no matter how bad things become for the Irish banks, a Spanish crisis would create a whole new ball game.

This week, credit rating agency Moody's cut the credit rating of 30 Spanish banks. If Spain, which after Ireland, had the most inflated property bubble in the eurozone, goes pear-shaped then all bets are off.

With an economy almost twice as large as those of Greece, Ireland and Portugal combined, any Spanish bailout would quickly wipe out the existing €750bn EFSF.

Q: What does this mean for the euro?

A: During previous eurozone crises, Greece last May and Ireland last November, the value of the euro tumbled on the foreign exchange markets.

So far the opposite has happened this time with the euro actually gaining value against both the dollar and sterling.

Unfortunately this is a reflection not of eurozone strength but of the fact that the outlook for the US and British economies is even worse than that of the eurozone.