New year, new crisis. No sooner had Europe’s bond traders, politicians and central bankers gotten back to their desks than it was time to begin tussling over the fate of a small economy on the periphery of Europe.
This time around, it’s Portugal. And yet the script seems very similar to the one played out already in Greece and Ireland. Bond yields surge. The government denies furiously there is any need for a bailout. French and German leaders rehash some of their lines about the importance of European solidarity. And the guys at the International Monetary Fund and the European Union pack their bags and check flight schedules.
Before you know it, the defiant words have vanished, and the bailout has begun.
And yet so far, most of the discussion has been about when Portugal gets rescued. There has been very little talk about a far more important question -- whether it should be.
In reality, it’s a terrible idea. It won’t stop the euro crisis spreading to the next country; the rescue mechanism is a mess; there’s no plan for getting countries out of the clutches of the EU and the IMF; and the obvious flaws in the packages are making the breakup of the euro area more likely. It would be better to admit that the EU made a huge mistake in bailing out Greece, and simply restructure Portuguese debt.
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