The Financial Times editorial, Published: April 6 2011 21:10
Viernes 8 de abril de 2011, por Carlos San Juan
Another eurozone country has been humbled by its banks. Earlier this week, Portugal’s banks were threatening a bond-buyers’ go-slow unless the caretaker government sought financial help from other European Union countries. After being beaten up in Wednesday’s debt auction, Lisbon has waved the white flag. The country’s caretaker leaders have now admitted that Portugal will need outside help.
There is no denying that Portugal faces deep problems. The yield on the country’s five-year bonds had touched 10 per cent. On Wednesday, it was forced to pay 5.9 per cent simply to secure one-year money.
Until now, the government had appeared to be holding its ground. It was rumoured even to be prepared to use Portugal’s social security fund to finance itself (although it denied using the fund to buy bonds in the auction).
Lisbon should have stuck to its position. Its statement now makes it inevitable that it will seek assistance from the European financial stability facility after the June elections. But it should still resist doing what the banks demanded: seeking an immediate bridging loan. This would be arduous to negotiate, involving similar conditionality to an EFSF rescue package. By jumping the gun, the government risks having scared markets away entirely. That may prejudice the outcome of negotiations about the longer-term facility.
The caretaker government has neither the moral nor the political authority to determine Portugal’s future in this way. It should not precipitately abandon the markets. That may mean paying high yields on debt issues in coming months – higher than they might have been had the government not folded its hand too soon. A few expensive debt auctions will not cripple Portugal, although the extra interest cost will sharpen the pain of any final austerity. Tapping the social security fund is an alternative – if an unpalatable one.
In any event, an EFSF rescue will not solve Portugal’s more deep-seated problems, namely its feeble growth and lack of competitiveness. The last government did too little to deal with Portugal’s over-protected labour market and its bloated public sector.
The right time to opt for an external rescue would have been at the end of a national debate. The election campaign offered Portuguese politicians a chance to explain to the public what needs to be done and to seek such a mandate. They should seek to salvage what they can of this opportunity.
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