Portugal is going down swinging.
After insisting for weeks that they wouldn’t be forced into a bailout by an uppity bond market, Portuguese officials gave in to the inevitable Wednesday and said they would seek financial help from the European Union.
“The government decided today to ask the European Commission for financial help,” prime minister Jose Socrates said in a nationally televised address.
But let no one say the Portuguese are going quietly. In throwing in the towel, Finance Minister Fernando Teixeira Dos Santo did his best imitation of the fallen Wall Street chiefs Dick Fuld and Jimmy Cayne.
He blamed not his government’s policies or his economy’s poor performance, but the evil speculators who he claimed drove Portugal unfairly into the arms of official lenders who will demand tough terms.
“The country was irresponsibly pushed into a very difficult situation in the financial markets,” Dos Santo said, according to local newspaper Jornal de Negocios. He said the “difficult situation” befalling the country “could have been avoided.”
How it could have been avoided wasn’t clear. Portugal has been running a fiscal deficit for years; it recently reached 8.6%, much higher than the 7% or so the government had been shooting for. The economy hasn’t grown as much as an anemic 2% in at least six years, and publicly held debt is a troubling 83% and climbing.
The International Monetary Fund said last year that the economy, which contracted nearly 3% in 2009, is hamstrung by “long-standing imbalances, including low productivity, weak competitiveness, and high debt.” It said an “ambitious policy response is needed with strong public support and determined leadership over many years.”
But Socrates' government fell last month after parliament voted down tough budget-cutting measures. Dos Santos hinted Wednesday that taxpayers won’t be the only ones sharing the pain.
“That will also require, the involvement and the compromise of the principal forces and the national political institutions,” he said, Jornal de Negocios reported.
The bailout request wasn’t surprising, given this month’s surge in interest rates on Portuguese debt. The government sold 1 billion euros ($1.4 billion) of short-term debt Tuesday at rates as high as 5.9% for a single year. One-year U.S. government debt fetches 0.30%, by comparison.
Wednesday’s announcement was received calmly by financial markets, with the euro holding recent gains at $1.43 to the dollar. Many commentators have been expecting the euro to fall as the euro zone’s fiscal problems come to the fore, first in Ireland and Portugal and possibly later in Spain.
For now, Spain looks safe. Its 10-year bonds are trading at around 5.25%, which is just about 1.8 percentage points above comparable German bunds. That's not an unusual spread and it says market participants aren't unduly nervous about the country's finances. But there's no telling, the Portuguese will tell you, when push might turn to shove.