Should Britain pay for a Portuguese bailout?

|
Armando Franca / AP
Portuguese Prime Minister Jose Socrates, center left, bottom row, listens to Finance Minister Fernando Teixeira dos Santos, center, deliver his speech opening the debate of his minority government's latest austerity package on March 23, 2011. What role should other countries play in Portugal's economic recovery?

In all the excitement about a whole penny being taken off fuel duty, we should be careful not lose perspective of the bigger picture. As the budget was being delivered yesterday, Portugal entered the final stages of economic collapse. It now seems virtually inevitable that the country will take a bailout from the EU. This makes it the third country, after Greece and Ireland, to seek a bailout. Many argued that those bailouts would create a moral hazard, encouraging more countries to take bailouts. Sadly, Portugal looks like a case in point.

Portugal’s crisis is more comparable to Greece’s than Ireland’s, as Ireland’s budgetary crisis was brought to a head by a banking crisis, whereas Greece and Portugal’s crises are almost entirely due to poor budget discipline. And the Portuguese government fell yesterday because parliament rejected its fiscal austerity plan (which might have allowed Portugal to avoid a bailout) as being too harsh. In other words, this bailout can’t even be blamed on bankers – the fault lies with Portugal’s political class, for maxing out its credit card and refusing to pay the price of austerity.

The obvious and crucial question is: why should we pay for this bailout? The case for the Irish bailout – the British banks have so much exposure to Irish ones that really this was a cut-price bailout for ourselves – doesn’t work here. British banks have very little exposure to Portugal (though Spanish banks have quite a lot – a little over $100bn, according to the Bank of International Settlements).

What’s the cost for Britain in this? Open Europe estimates that we’ll end up spending between £3bn–£4bn on any bailout that Portugal gets, which is about as much as it would cost to raise the tax-free allowance by another £700 (or to cut the fuel duty by a bit more, if the government wants positive headlines). The Portuguese are in the mess they’re in because, frankly, they've failed to balance their books. British taxpayers are already paying for fiscal recklessness at home – why should they have to pay for it abroad as well? As with the banks, so it is with the eurozone countries – one bailout is leading to many, as the alchemists of loss slip away while the rest of us pay for their mistakes.

Add/view comments on this post.

------------------------------

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.

You've read 3 of 3 free articles. Subscribe to continue.
QR Code to Should Britain pay for a Portuguese bailout?
Read this article in
https://www.csmonitor.com/Business/The-Adam-Smith-Institute-Blog/2011/0324/Should-Britain-pay-for-a-Portuguese-bailout
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe
CSM logo

Why is Christian Science in our name?

Our name is about honesty. The Monitor is owned by The Christian Science Church, and we’ve always been transparent about that.

The Church publishes the Monitor because it sees good journalism as vital to progress in the world. Since 1908, we’ve aimed “to injure no man, but to bless all mankind,” as our founder, Mary Baker Eddy, put it.

Here, you’ll find award-winning journalism not driven by commercial influences – a news organization that takes seriously its mission to uplift the world by seeking solutions and finding reasons for credible hope.

Explore values journalism About us