Portugal Ordered To Apply For EU Bailout

Portugal has been told to apply for a rescue from EU’s bailout fund (ESFE) so that Spain won’t be sucked into the black hole of sovereign debt, according to German media reports. Spain is seen as a more “systemically important” country than both Portugal and Ireland. Yesterday there was rumors saying that the European bailout fund don’t have enough money to bail out Spain if it comes to that.

“There is zero danger.”

Klaus Regling

The European Central Bank and a majority of member states in the euro zone are putting heavy pressure on the narrow Iberian nation to be the third country to tap the European Financial Stability Facility, according to a report based on unnamed sources in the Financial Times Deutschland.

European leaders and a number of analysts fear that should if Portugal should default, Spain would be dragged down with it.

While the debts of Greece, Ireland and Portugal are thought to so far be manageable, Spain would empty the euro zone’s emergency piggy bank, the EUobserver.com writes.

Lisbon is being told that if it applies to the facility, this would ease pressures on Spanish borrowing costs.

“If Portugal were to use the fund, it would be good for Spain, because the country is heavily exposed to Portugal,” the FT Deutschland’s source says.

The country’s borrowing costs climbed to near record highs on Thursday, with yields loitering around seven percent for 10-year bonds, while Spain’s 10-year bond yields climbed to a record 5.2 percent.

Meanwhile, according to Die Welt, the European Commission is trying to convince partners that the €440 billion EFSF needs to be double its funding – a proposal immediately rejected by EU’s paymaster, Germany.

Brussels however denies the report.

Axel Weber, German representative on the ECB board and head of the Bundesbank, says the existing total rescue sum – including €250 from the IMF and another €60 from the EU directly, should be sufficient, but that if not, more guarantees could be found.(printed).

“This should be more than enough to counter attacks on the euro zone. If it’s not enough, then one will have to increase this commitment,” Weber said.

However, other EU leaders are insisting on the fact that there is no existential threat to the euro, as suggested by some analysts.

Luxembourg Prime MInister Jean-Claude Juncker, (chairman of the group of states that use the euro), says he do not fear for the single currency.

And EFSF chief Klaus Regling says to German Daily Bild: “No country will give up the euro of its own will: for weaker countries that would be economic suicide, likewise for the stronger countries. And politically, Europe would only have half the value without the euro.”

“There is zero danger. It is inconceivable that the euro fails.”

I guess time will tell…

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Filed under International Econnomic Politics, National Economic Politics, Philosophy