Portugal´s bail out; Spain´s, the next. It´s the politics, stupid

Portugal has fallen in a vacuüm: The government has dismissed, admitting he was incapable of negotiating an intervention of the EFSF – the European Facility that has rescued Ireland & Greece.

“Until new elections, this government has neither the legitimacy nor the power to negotiate any agreement at all,” said Fernando Teixeira do Santos, finance minister.

That means the government has ruled out the possibility of Portugal asking for a bail-out for almost three months, in spite of doubts that it will be able to meet €9.3bn ($13.2bn) in bond repayments that fall due in April and June. (FT today)

The chain of fatal events in Portugal could be replied easily in Spain. The main problem is not economic, but of government capacity. In may, there will be regional election in Spain, probably winded by the opposition; the result of which will be a more flawed government, more unveiled regional debt, awful financial conditions, and a general lack of decision of both party to face the real problems.

The main problem for Spain is the recapitalisation of flawed banks. That could be done with some difficulties, but probably it will be well-assumed by the market only  if  government has sufficient will. Spain has not so high public debt, and to put € 40 billion will not mean a huge problem. All in all, the total debt rise from 60% to 80% of GDP, more or less the media of euro zone.

But nor te government party, neither the opposition, has the intention to joint its forces to do it. Each one is not capable of facing it; but the huge distance between them, and the good perspective of the opposition to wind election next year, has awoke the wild impiety of liquidating entirely the  socialist (a reasonable target in normal times, but not today).

The probable result of all that will be a profound wear of socialist party, and a no less haunting possibility of a right party managing a  very unpleasant and useless bail out, which perversity can be observed in graph: The countries rescued has not been capable to get some credibility.

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