Oh dear, looks like Portugal is going to have to accept a bailout from the EU. For those who don't know, last night the Portuguese MP's rejected austerity measures put forward by the current Government, you can read more here.
What does this mean? Well it means the likelihood of Portugal having to accept a bailout from the EU is very high, making it the third country to do so, as Ireland and Greece have already accepted a bailout.
Portugal's crisis is more similar to the Greeks issues rather that the Irish, why? Because Ireland's was caused by a banking crisis as opposed to Greece which was caused due to
Ed Balls' poor budgetary control and ultimately spending too much borrowed cash, and refusing to pay the bill. The problem now is, well from our tea sipping, crumpet eating point of view is, well, bugger.
After a good and well received budget yesterday from Mr Osbourne and a nice penny saving in fuel duty, it now looks like we may have to contribute between €3-4bn to a Euro bailout,(source here) that is enough to raise the tax free allowance by another £700!!
To those that followed my old blog, you'll be aware that I was a supporter of the Irish bailout. This was purely down to the exposure UK banks had, and also the fact that we offered a separate loan outside of the European Stability Mechanism, so not only did we make a nice return on our loan....but Ireland also spent our loan on our goods and services, a nice win win for us. As with Portugal, our banks don't have much exposure and thus won't actually impact us in the same way.
How much would we have to lend, and why? Well, say Portugal take a €70bn loan and it was along the same lines as the Greek/Irish loan then the money would probably come from 3 sources, the International Monetary Fund, The European Financial Stability Facility (EFSF) and the The European Financial Stability Mechanism (EFSM). If each of them contributed €23.3bn then the UK will have to contribute €1.0485bn towards the IMF loan (something I do agree with) and then a whopping €3.2154bn towards the EFSM loan (something I do not agree with). (source here)
The EFSM was set up by EU member states to create a fund to bailout failing countries to keep the Euro stable, something that Labour and Mr G Brown signed us up to.....(thought I would point out at this point we aren't allowed to use the fund ourselves because we aren't in the Euro).(Source Here)
Either way, I hope that Mr Cameron will reject any British contribution to the EFSM if it comes to it, the British tax payer is already suffering enough under our own austerity measures to ensure we don't end up in the same situation (something Ed Balls and Miliband should be researching and learning about) to pay for, in short, the Portuguese mess they have created themselves by not paying their debt or taking steps to reduce it.
It is rather worrying that so many countries are falling into this loop, and the EU are going to have to stop lending money to failing economies at some point. Italy are already on the verge...and I am wondering if this episode could push Spain over the top (they have around €100bn worth of exposure in Portugal, if Portugal accept the loan then this will shake the Spanish markets, could even push them too far (Source Here)) One wonders if there is enough in the EFSM and EFSF to offer a loan to Spain as well.....watch this space, and the Euro.