By Paul Goodman
That's Open Europe's estimate, anyway: we linked earlier this morning to the Financial Times's account of José Sócrates's resignation. As EU leaders meet today in Brussels in a bid to agree a new "grand bargain" to save the eurozone, the organisation points out in a briefing that Portugal looks set to be the next country to apply for a bail-out from the Eurozone.
It estimates that "to cover Portugal ’s deficit and bond repayments for three years, the bail-out would have to be between €60bn and €70bn. We estimate that the UK ’s share in such a bail-out would range from €810 million to €3.7 billion in the event of a €60bn bail-out, and €945 million to €4.26 billion in the event of a €70bn rescue operation; with the higher end of the respective estimates being more likely".
Open Europe’s economic analyst Raoul Ruparel said:
“A bail-out of Portugal now looks virtually inevitable. But the cases of Ireland and Greece clearly illustrate that the EU’s strategy – to throw good money after bad – is failing. Rather than simply taking a bail-out, it would be better in the long run for Portugal to restructure its debt.”
“The UK may be forced to contribute to a bail-out of Portugal , since it doesn’t have a veto over the EU bailout fund that it’s liable for. However, a Portuguese bail-out without a restructuring wouldn’t be in the UK’s interest, as it fails to tackle the long term problems of both Portugal and the eurozone.”
As Open Europe points out –
"David Cameron has already said that the UK might be required to contribute to a bail-out of Portugal , since part of the rescue fund (the €60bn EFSM) is activated by majority voting, meaning the UK has no veto over its participation. We estimate that the UK ’s share in such a bail-out would range from €810 million to €3.7 billion in the event of a €60bn bail-out, and €945 million to €4.26 billion in the event of a €70bn rescue operation; with the higher end of the respective estimates being more likely."
Open Europe says correctly that a bail-out is unlikely to solve any of Portugal’s fundamental problem, and that a more viable solution would be to combine a limited bail-out with a restructuring of some of Portugal ’s debt. This is right, and what I've previously argued for in relation to Ireland which, like Greece, is currently seeking to renegotiate its bail-out terms.