There is a clear pattern of events in the eurozone, and not much to choose between Portugal and Spain Larry Elliott, economics editor
Guardian.co.uk
We have heard it all before. Spain is different from Portugal. A line has been drawn in the sand. There are no fundamental problems with the eurozone that would require any country to default, let alone leave the single currency altogether.
This was a plausible thesis last spring, when Greece was the country in the line of fire. Policymakers in Athens had clearly told some enormous porkies about Greece's public finances and suffered the consequences when the truth came out.
The thesis looked a bit less tenable when Ireland went the same way as Greece last Autumn, but the argument was that the former Celtic Tiger had been through a quite extraordinary housing boom-bust and was thus a special case.
Now the message is that the bailout for Portugal represents a line in the sand.
There are two big problems with this line of argument. The first is that it is at odds with the clear pattern of events in the eurozone over the past year, which goes like this: in phase one, a country is earmarked as having a problem by the financial markets.
In phase two, the country insists that it is absolutely fine and has no difficulties with its budget deficit, its trade deficit, its growth rate or its banking system.
In phase three, the country has its debt rating downgraded by the ratings agencies.
In phase four, bond yields soar and the country eventually capitulates to the pressure.
In phase five, Europe's policy elite agrees to a bailout with strings attached but insists that this time it has got on top of the problem once and for all.
The second problem is that when it comes to the economic fundamentals, there is not an awful lot to choose between Portugal and Spain.
Last year, Spain grew by 0.6% while Portugal grew by 1.2%. At 20.5%, Spain's unemployment rate is almost double Portugal's 11.1%.
Spain's current account deficit looks a lot healthier than Portugal's, and its national debt is lower but there's little between the two countries when it comes to the size of their respective budget deficits.
The notion that Spain is somehow different to Portugal is based on a somewhat fanciful belief that it is a more dynamic economy and is immune from speculative attack by virtue of its size.
In reality, Spain is living proof of what would have happened had Britain joined the euro in 2003; it milked the benefits of low interest rates for an unsustainable housing and construction boom that has infected its financial system.
So while it may be comforting for policymakers in Brussels and Frankfurt to believe that the sovereign debt crisis comes to an end with the Portuguese bailout, it is far more likely that Wednesday night's call for help from Lisbon marks the start of a new and more dangerous phase of the crisis.
Portugal will now receive help getting through its short-term funding crisis, but the evidence from Greece and Ireland is that the respite from financial market pressure is brief.
For the struggling countries on the eurozone's periphery, the national debt is rising because the interest rates to finance their budget deficits are higher than their growth rates.
Madrid is insisting that there is no reason to fret, but there is. Spain has deep-seated economic problems that make it an obvious candidate for some close attention from the bond market vigilantes. Yet, it would be prohibitively expensive and politically untenable to bail out the eurozone's fourth biggest economy.
A crisis in Spain will put at risk the future of monetary union in its current form.
Guardian.co.uk
We have heard it all before. Spain is different from Portugal. A line has been drawn in the sand. There are no fundamental problems with the eurozone that would require any country to default, let alone leave the single currency altogether.
This was a plausible thesis last spring, when Greece was the country in the line of fire. Policymakers in Athens had clearly told some enormous porkies about Greece's public finances and suffered the consequences when the truth came out.
The thesis looked a bit less tenable when Ireland went the same way as Greece last Autumn, but the argument was that the former Celtic Tiger had been through a quite extraordinary housing boom-bust and was thus a special case.
Now the message is that the bailout for Portugal represents a line in the sand.
There are two big problems with this line of argument. The first is that it is at odds with the clear pattern of events in the eurozone over the past year, which goes like this: in phase one, a country is earmarked as having a problem by the financial markets.
In phase two, the country insists that it is absolutely fine and has no difficulties with its budget deficit, its trade deficit, its growth rate or its banking system.
In phase three, the country has its debt rating downgraded by the ratings agencies.
In phase four, bond yields soar and the country eventually capitulates to the pressure.
In phase five, Europe's policy elite agrees to a bailout with strings attached but insists that this time it has got on top of the problem once and for all.
The second problem is that when it comes to the economic fundamentals, there is not an awful lot to choose between Portugal and Spain.
Last year, Spain grew by 0.6% while Portugal grew by 1.2%. At 20.5%, Spain's unemployment rate is almost double Portugal's 11.1%.
Spain's current account deficit looks a lot healthier than Portugal's, and its national debt is lower but there's little between the two countries when it comes to the size of their respective budget deficits.
The notion that Spain is somehow different to Portugal is based on a somewhat fanciful belief that it is a more dynamic economy and is immune from speculative attack by virtue of its size.
In reality, Spain is living proof of what would have happened had Britain joined the euro in 2003; it milked the benefits of low interest rates for an unsustainable housing and construction boom that has infected its financial system.
So while it may be comforting for policymakers in Brussels and Frankfurt to believe that the sovereign debt crisis comes to an end with the Portuguese bailout, it is far more likely that Wednesday night's call for help from Lisbon marks the start of a new and more dangerous phase of the crisis.
Portugal will now receive help getting through its short-term funding crisis, but the evidence from Greece and Ireland is that the respite from financial market pressure is brief.
For the struggling countries on the eurozone's periphery, the national debt is rising because the interest rates to finance their budget deficits are higher than their growth rates.
Madrid is insisting that there is no reason to fret, but there is. Spain has deep-seated economic problems that make it an obvious candidate for some close attention from the bond market vigilantes. Yet, it would be prohibitively expensive and politically untenable to bail out the eurozone's fourth biggest economy.
A crisis in Spain will put at risk the future of monetary union in its current form.
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