Europe, and the UK, should be much more proactive about Portugal

As Portugal bites the dust – following Ireland and Greece in asking for an EU bail-out – the most important question is still not being asked by EU policy-makers, or by the British government for that matter: will a bail-out actually solve any of Portugal’s problems?

The simple answer is, it won’t. Asking the European Central Bank to take on more junk bonds, or piling more taxpayer-backed loans on Portugal’s already heavily indebted economy is not a long term solution. Ireland and Greece have already sought to renegotiate their bail-out terms as they are struggling to grow fast enough to repay their EU/IMF loans (ECB rate increases like the one we saw yesterday are unlikely to help). Similarly, a bail-out will do little to solve Portugal’s underlying problems. The country is insolvent and has little prospect of being able to repay its existing debt burden, let alone even more loans from an EU bail-out.