The Portuguese bailout seems to be doomed to fail… and obviously the why question is not easy to answer. The certainty of this fate is not to be doubted as loan rates of 6% are not saving anyone.
Loan by nature demands a trust relation between the two parts.
The question then is… IMF and the EU by lending money to Portugal are doing one of two:
- It is necessary to keep european cohesion and its member states economies healthy!
- Why are only speculators profiting from Portugal and why can’t we profit also?
Now, knowing that the European Central Bank interest rate is at 1,5% I do think that the EU and the IMF are not really interested in question 1.
If they think Portugal needs an healthy economy and really think we are trustworthy to receive the loan, then the interest rate should be lower. On the other hand by putting the bar at almost 6% they are cutting every possibility of repaying these loans with growth.
6% means this loan as to have such a return of investment to be fully paid. If you connect this with the fact that Portugal is now going to enter a recession and loose at least 2% of GDP during next year… I’m really convinced that the EU and IMF are just taking care of their business and saying “we can be vultures too”.
This looks like a medieval executioner asking his victim if he wants his head shopped off with an axe or with a butter knife. Portugal chose the latter and now is electing a new government to help grease our necks.
With all this a default of the debt will be necessary, not because we need it or want it, but because IMF and the EU said so in the protection of their interest rates.