With Portugal joining the list of European peripheral economies being bailed out through ‘tough love’ emergency aid, the terms being foisted upon the hapless indebted states of the continent are coming in for criticism. The severe austerity measures required of nations availing the European Financial Stability Facility (EFSF) have not yet helped previous recipients—Greece and Ireland—tide over their respective crises. Long after being bailed out, these two countries face double-digit yield spreads on 10-year government bonds, a crushing new layer of debt servicing burdens, and no sign at all of revival of economic growth.
Portugal is now awaiting the dreaded footfall of IMF and European Central Bank bailout specialists, who will arrive in Lisbon with a catalogue of conditionalities that the lame duck government has to sign on to. Whether drastic austerity measures imposed by the aid bureaucracy from Brussels will ever restore balanced budgets in prostrate European economies is the gnawing question.
Why were the ‘PIG’ economies not allowed to restructure their debt, i.e., by reducing or writing off gargantuan obligations to foreign banks, instead of having to fall under the knife of bailouts and extreme budget cuts? The bailout of Portugal, estimated to be around $113 billion, has been designed to assist the repayment of Portuguese debt to banks in France, Germany and Britain, which have high exposure.
In the context of European Union politics, these are the heavyweight powers that dominate policymaking and that are at the forefront of devising harsh fiscal conservatism preconditions on bailout recipients. Much to the resentment of the ‘PIGS’, these heavy hitters have decided that they will do everything in the interests of previous loan recoveries for their own banks, even at the expense of peripheral economies stagnating in debt ghettos for years to come.
The New York Times quoted economist Simon Tilford as saying that the pound of flesh being extracted from ‘PIG’ by Europe’s big players on behalf of their bondholding banks is a case where “taxpayers of Greece, Ireland and Portugal are bailing out German, French and British taxpayers and depositors—not the other way around.”
Undoubtedly, Europe’s present-day sick men have themselves to blame