Need for Portuguese Bailout Not Justified by Numbers

By Grant de Graf

Portugal has raised €4.75 billion ($6.5 billion) via bond sales so far this year. But it now faces redemptions totaling €3.848 billion in maturing Treasury bills in March, according to data from Portugal's Treasury and Government Debt Agency. It then has €4.342 billion in bond redemptions in April, followed by €4.933 billion to be paid out in June. According to simple arithmetic, that leaves Portugal with about €8 billion short.

This deficit is nowhere near the shortfalls that were endemic to the Greek and Irish bailouts, even based on percentages. True, Portugal is a smaller economy and some will argue that this may well be the straw that breaks the camel's back. Most certainly, Portugal could always turn to the European Central Bank to avail it of a credit line, or raise the shortfall through a bond auction. The most probable outcome is that both alternatives will be pursued, even if it is structured in a way less conspicuous to the market.

Pundits are predicting a collapse of the country, given the "punitive" interest rates that Portugal will need to pay. In the bigger scheme of things, taking a long term view, those interest rates may actually be quite low. Ultimately, Portugal and the ECB will need to structure a blueprint that will work for Europe in its entirety. The need to resolve short term imbalances is important, but hardly of game changing significance in the bigger scheme of things. One thing is for sure. Nothing is certain.