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Interview: EU should preempt rescue of Portugal, Spain: expert

12-15-2010 18:14 BJT

BRUSSELS, Dec. 14 (Xinhua) -- The European Union (EU) should launch a preemptive rescue of Portugal and Spain to prevent sovereign debt crises from spreading, an expert said Tuesday.

"I think now we need something which is preemptive and actually gives markets certainty that these countries (Portugal and Spain) will be helped if they are in trouble," European Policy Center chief economist Fabian Zuleeg said in an interview with Xinhua.

Zuleeg said currently it looked inevitable that Portugal and Spain would follow Greece and Ireland into debt dramas. A preemptive rescue of the two southern eurozone countries could help deter speculation and put a stop to the domino effect of the debt crisis.

"I think it will become very hard (for Portugal and Spain) to avoid asking for support if current speculation continues," he said, adding that "at the moment, it does not look like we are putting the right things in place to stop that speculation."

Portugal and Spain are now widely seen as the next victims of the eurozone sovereign debt crisis, which broke out in Greece earlier this year.

Following Greece, Ireland became the second and latest eurozone country which fell prey to the crisis last month.

Although an aid package totaling 80 billion euros (107 billion U.S. dollars) has been sealed for Ireland, it has failed to curb the contagion threat of the debt crisis. Borrowing costs for Portugal and Spain have so far risen significantly.

It was estimated that Portugal, the next weakest link, would have to refinance or repay 20 billion euros (27 billion dollars) of debt by the middle of next year, a crucial test for Lisbon.

Both Portugal and Spain repeatedly insist they do not need a bail out.

After bailing out Greece early this year, the EU, together with the International Monetary Fund (IMF), set up a 750-billion-euro (1-trillion-dollar) rescue mechanism in May in case other eurozone countries went the same way.

But the standby mechanism apparently did little to stop the spreading of the crisis. About half a year after its establishment, Ireland was the first to activate the mechanism.

Zuleeg said the failure was mainly due to the uncertainties of the mechanism.

As shown in the bailout of Ireland, "the system cannot oblige a eurozone country to ask for support. Even when you ask for it, you may not get it, which makes another uncertainty," he said.

Dublin had made a vain attempt to avoid the fate of Greece, initially defying calls for it to seek a bailout in the interests of the whole eurozone. The uncertainty contributed to market turbulence and invited speculative attacks.

"If we can create that certainty, I think we could stop the speculation," Zuleeg said.

As EU leaders were to kick off a two-day meeting in Brussels on Thursday, the IMF called for more money to be paid into the mechanism, but it was rejected by Germany.

The 750-billion-euro mechanism may be enough for bailouts of Ireland, Portugal and even Spain, but a bailout of Spain, the fourth largest economy in the eurozone, would almost exhaust.

"It is a credibility problem. If Germany can agree with the increase, it will stop speculation," Zuleeg said.

 

 

Editor:Zhang Pengfei |Source: Xinhua

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