Perilous Times
Euro crash: currency under siege after Portugal hits panic button
The euro is facing an unprecedented crisis after another country
indicated that it was at a “high risk” of requiring an international
bail-out.
Angela Merkel
'If the euro fails, then Europe fails,' warned the German Chancellor
Angela Merkel last night Photo: AP
Portugal became the latest European nation to suggest it was on the
brink of seeking help from Brussels after Ireland confirmed it had
begun preliminary talks over its debt problems.
Greece also disclosed yesterday that its economic problems are even
worse than previously thought. Last night, the German Chancellor Angela
Merkel raised the spectre of the euro collapsing as she warned: “If the
euro fails, then Europe fails.”
European finance ministers will meet in Brussels tomorrow to begin
discussions over a new European stability plan that is expected to lead
to billions of pounds offered to Ireland, Portugal and possibly even
Spain.
David Cameron said he was thankful that Britain had not joined the
euro, but indicated his displeasure that taxpayers in this country
faced a £7 billion liability in any bail-out package.
The veteran Conservative MP Peter Tapsell warned that the “potential
knock-on effect” of the Irish crisis “could pose as great a threat to
the world economy as did Lehman Brothers, AIG and Goldman Sachs in
September 2008”.
Ireland has resisted growing international pressure to accept EU
financial assistance amid concerns that this would lead to a surrender
of political and economic sovereignty.
However, the German government is expected to signal today that Ireland
may have to accept a £77 billion bail-out, along with a loss of
economic and political independence, as the price of preserving the
euro. Mrs Merkel said the single currency was “the glue that holds
Europe together”.
Her words came as fellow eurozone members Portugal and Spain rounded on
Ireland. They fear that international concerns over the euro will lead
to so-called market contagion spreading to them.
Fernando Teixeira dos Santos, the Portuguese finance minister, said:
“There is a risk of contagion. The risk is high because we are not
facing only a national problem. It is the problems of Greece, Portugal
and Ireland. This has to do with the eurozone and the stability of the
eurozone, and that is why contagion in this framework is more likely.”
Mr Teixeira dos Santos added: “I would not want to lecture the Irish
government on that. I want to believe they will decide to do what is
most appropriate together for Ireland and the euro. I want to believe
they have the vision to take the right decision.”
He later sought to clarify his comments, insisting that Portugal was
not preparing to seek assistance.
Greece had earlier added to the growing uncertainty when it said it
would breach the conditions for the bail-out it was granted by the EU
earlier in the year. The Greek government said its debt problem was
much worse than previous dire forecasts.
Eurostat, the EU statistics agency, said Greece’s 2009 budget deficit
reached 15.4 per cent of gross domestic product, significantly above
its previous figure of 13.6 per cent.
George Papandreou, the Greek prime minister, said new European-wide
taxes might now be needed to fund bail-outs.
“We need a mechanism which can be funded through different forms and
different ways,” he said. “My proposal is that taxes such as a
financial tax or carbon dioxide taxes could be important revenues and
resources for funding such a mechanism.”
Yesterday, Irish ministers continued to insist publicly that they did
not require a European bail-out to help meet the cost of repaying the
country’s debts. However, reports suggested that Ireland might require
help to shore up its banks.
Jean-Claude Juncker, the head of the Eurogroup of finance ministers,
said the eurozone was indeed ready to act “as soon as possible” if
Ireland sought financial assistance. But he stressed that “Ireland has
not put forward their request”.
Ireland suffered the worst recession of any major economy and has
amassed government debts of more than €100 billion (£84 billion). It
has an unemployment rate almost twice as high as Britain at 13.2 per
cent and currently has a record deficit equivalent to 32 per cent of
its gross domestic product.
Senior figures at the European Central Bank yesterday lined up to
insist that the Irish accept international help to reassure investors
that the euro was secure.
Miguel Angel Fernandez Ordonez, the Bank of Spain governor and a member
of the ECB’s governing council, said: “The situation in the markets has
been negative due in some part to the lack of a decision by Ireland.
It’s not up to me to make a decision. Ireland should take the decision
at the right moment.”