US economist tells Portugal to seek bailout

Monday, November 29, 2010

American economist Nouriel Roubini has said that Portugal should consider seeking a bailout because of its weak growth and high amount of debt. Roubini made the comments to the Diario Economico newspaper. He said that it is becoming "increasingly likely" that Portugal will need international help. His comments came after Ireland received a €85 billion bailout from the European Union.

Portugal has become the second most likely eurozone country to require a bailout after Ireland, but it has paid all its insurance debt for this year. After news about Ireland's bailout became available, the euro rose around $1.33. After trading at $1.3181 in Asian trade, it sank to its lowest level since September 21.

Roubini also commented on the situation of Spain, the fourth largest economy in Europe. He said that the country is "too big to bail out." Nicholas Smith, the director of equity research at MF Global in Tokyo said: "The one to really watch is Spain, as the eurozone's fourth largest economy, bigger than Greece, Ireland and Portugal put together. The question is whether the Union has the capital firepower to rescue Spain in the way it has for Greece and Ireland."

He commeted on the euro zone as a whole. He said "The economic outlook over the next few quarters, the next few years, is going to be weak economic growth ... The policy consequence is going to be more monetary easing," Roubini added. "The only central bank officially against further quantitative easing is the European Central Bank, but the pressure coming on sovereigns and the pressure coming on the financial sector in the euro zone are going to force the ECB to provide liquidity and increase base money."

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Sources

"Roubini tells Portugal to seek bailout as markets slide" — The Daily Telegraph, November 29, 2010
"Roubini sees Portugal bailout, possibly Spain as well" — Reuters, November 29, 2010

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