Tuesday, April 9, 2013
My letter to the NY Times re: Putting the Portugal Bailout in Perspective
Re: New Trouble for Euro in Portugal
According to your article, just two years ago Portugal received a 78 billion euro bailout from the IMF and its creditors. Let's put that previous bailout in perspective. The 78 billion euro bailout is equivalent to around $100 billion. The population of Portugal is 10 million, so the bailout amounted to $10,000 per person. The gross national product of Portugal is $237 billion, so the previous bailout of Portugal is equivalent to 42% of its GNP. The gross national product of the US is $15 trillion. If the US were to get a similar sized bailout, it would receive over $6 trillion. Yet, incredibly, Portugal is still in financial trouble and its situation is getting worse, because its high court ruled the government's proposed benefit cuts to civil servants and pensioners to be unconstitutional. The members of the European Monetary Union (EMU)--i.e., those seventeen nations using the euro--really must ask themselves if there isn't something structurally wrong with a monetary arrangement that leads to such continuous disaster. Are the other members of the EMU expected to support profligate countries like Portugal forever? Since the Portuguese high court apparently has the power to prevent spending cuts and higher taxes cannot plug the gap, what is the answer? Well, there is none, except to end the common currency experiment, which has fostered one financial crisis after another in only a dozen years.