A bail out request from Portugal is now being seen as a virtual certainty after their Prime Minister, Jose Socrates, was forced to resign on Wednesday when he could not get agreement on accepting an austerity package for the country.
This would make Portugal the third Eurozone member to take assistance from the EU after Greece and Ireland and the amount they need is estimated at about Â£60 billion (â‚¬70 billion).
The UK, despite being outside the Eurozone, is committed to providing some of the funding for the bail out loan. The amount could be as much as Â£6 billion according to the Open Europe think tank. This comes in two parts. The first is a contribution as a member of the IMF, which could amount to as much as Â£1.5 billion. The second is because of an agreement that Alistair Darling signed as Chancellor during the period after the general election just before the Con/LibDem coalition was formed (a move George Osborne bitterly disagreed with at the time) and this could be as much as Â£4.5 million.
Open Europe spokesman Raoul Ruparel said “If the entire mechanism fund has to be used to bail out peripheral economies like Portugal, Britain’s contribution would be around â‚¬5.1 billion (Â£4.5 billion) – and we would have to pay another â‚¬1.7 billion (Â£1.5 billion) through the IMF. That would leave British taxpayers to pick up a massive bill of â‚¬6.8 billion – or Â£6 billion.”
The problem for Portugal is that they need to find some â‚¬4 billion in April in order to refinance some of its maturing debt. But this will be hard if not impossible at workable rates without a political plan in place and at present they are in limbo. The interest rates on their 10m year binds now stands at 7.91%, a new high. They seem to be dead against taking a bail out but also do not want to take the pain to prevent it.
Yesterday Moody's, one of the credit rating agencies, downgraded most of the Spanish banking sector sparking fears that the debt contagion may spread and that Spain was next. Another credit rating agency, Fitch, has also cut Portugal's sovereign debt from A+ to A-.
The director of the TaxPayers Alliance, Matthew Sinclair, said "British taxpayers rejected the euro and shouldn’t be asked to throw money down the drain trying to bail out that failed project. Paying billions to help politicians in the eurozone ignore reality is a chronic waste. They need to face up to the reality that currency union has failed. With our regular contributions to the EU budget rising rapidly too, it seems like there are cuts almost everywhere but in the cash we send abroad to wasteful and venal eurocrats”.