Portugal Bailout Denial: Sure Sign One Is Coming Soon?
Portugal’s prime minister said Tuesday that the country won’t need a
bailout. If history does in fact repeat itself, this means Portugal’s
probably going to be asking for help in a matter of days.
During the debt crisis that’s plagued Europe for nearly a year,
government leaders have made a habit of publicly declaring that their
countries can fight their own battles shortly before asking for help.
A look at what happened when Ireland and Greece officials made
similar statements last year shows that when those two European
sovereigns declared they were fine on their own, it took less than a
week for them to start sounding a different tune. Within a month of
their statements, both had done full about-faces and sought financial
aid from the European Union and International Monetary Fund.
Ireland’s minister for European affairs, Dick Roche,
said Nov. 15 that “there is no need for us to trigger any [financial
support] mechanism; we haven’t triggered any mechanism; there’s been no
political discussions about triggering a mechanism.”
It was exactly six days later that Irish Prime Minister Brian Cowen formally applied for aid from the EU and IMF bailout fund.
Greece set the trend eight months earlier, when Greek Prime Minister George Papandreou
said March 18 that “we want to do it ourselves and, for that reason, we
are not seeking financial help.” Five days later, Finance Minister George Papkonstantinou
said, “There must be some sort of mechanism to ensure stability,” a
statement that some saw as an about-face. By mid-April, Greece had
formally requested the European Union-IMF bailout.
So, don’t be surprised if Portugal is asking for help next week, even as Portuguese Prime Minister Jose Socrates
said Tuesday that the country “won’t ask for any financial help because
it’s not necessary.” Indeed, spreads on Portuguese sovereign debt swaps
reached record-wide levels Tuesday — an indication that fears about the
country’s fiscal health were running high — before bond-buying by the European Central Bank helped calm down the market.
Just don’t assume that these sudden stance shifts are unique to
Europe. Remember how many U.S. financial institutions proudly said they
didn’t need help from the U.S. government in 2008? We all know how that