Portugal finally capitulated to reality and followed Greece and Ireland in formally seeking a €80 billion ($147.4 billion) bailout from its eurozone partners and the IMF to save it from default on unsustainably high foreign debts.
Prime Minister Jose Socrates told his people in a televised address that Portugal was throwing in the towel after a year-long struggle to solve its problems without outside assistance.
"We have reached the moment. This is an especially grave moment for our country, and things will only get worse if nothing's done."
Socrates said a bailout was "the last resort". Portugal has been forced to pay unsustainably high rates of interest to foreign investors; the fact that a loan from the European Union and the International Monetary Fund would be cheaper is the brutal calculus that lies behind this national humiliation.
Other European countries have long urged Portugal to accept help in the hope of containing the continent's debt crisis. As with Greece and Ireland, the doleful pattern of futile resistance has repeated itself: profuse official denials of help followed by intolerable market scepticism and pressure; and chaos before Europe's leaders were able to get ahead of events.
Last month's EU summit was the last opportunity for the leaders of the euro area to come together and agree on an enlargement of the current bailout fund, the European Financial Stability Facility.
They were supposed to agree to a €250 billion increase in funding to €440 billion; instead they deferred a decision to June, in deference to pleas from the Finnish Government, which faced tricky elections. Thus did the Greek and Irish tragedies replay themselves against a Portuguese backdrop.
While a serious burden on the already stretched eurozone bailout fund, the Portuguese rescue package - likely to amount to about €80 billion - is well within the fund's means. But if the "contagion" now spreads to Spain, the costs could be far larger, and threaten the euro itself.
During the latest episode in the euro's existential crisis, Spain has managed to avoid the taint of imminent collapse. But many wonder whether this can be sustained, not least because Portugal, right next door, is such an important trading partner.
Spain is a much larger economy than Portugal but its smaller regional banks, the cajas, are badly exposed to its collapsed property market, and are proving costly to shore up.
Investor and economist Nouriel Roubini, who correctly predicted the coming of the credit crunch and subsequent slump, summed up the danger to the euro: "I think the big question is not Portugal - that is too small - but rather whether the contagion could spread, over time, to Spain, a country that is on one side too big to fail, but from the other side too big to be saved."
The Portuguese denouement comes before a "crunch" rollover of government debt due by the end of next week, and many judged the Portuguese would be able to muddle through once again, on the expectation that further covert assistance from the European Central Bank would be forthcoming.
Yet opinion within the ECB, based in Frankfurt and heavily influenced by Berlin, has been turning against Portugal and other peripheral nations that have used their banks' right to borrow from the ECB at easy rates as a conduit for state funding.
Nor is the Portuguese crisis likely to draw a line under the eurozone's crisis. Almost a year on from its own crisis, Greece is almost certainly headed for default on its huge debts, because even another loan from its partners would not be enough. Debt has overwhelmed its economy.
Ireland's new Government has declared its intention to "renegotiate" the EU/IMF rescue deal reached last November and has the holders of bank debts with partial default.
Although suffering from the same crisis of confidence, savage downgrades by credit agencies and being shunned by the markets, Europe's problem states all have different flaws.
Before the banking crisis, Ireland enjoyed enviable growth rates and low public debt. Portugal and Greece did not suffer banking crises; yet their economies are simply uncompetitive and locked into the euro, unable to devalue their way out. No solution is readily available from Europe's leaders as the eurozone lurches into its latest trauma.
- INDEPENDENT
