Portugal’s decision to follow Greece and Ireland in seeking a European Union-led bailout may mark a watershed in the region’s debt crisis, according to PIMCO chief Mohamed El-Erian.
Instead of a falling domino that threatens to topple countries higher up the credit-quality ladder, the latest aid request will likely speed up the debt restructuring of the three countries in Europe’s intensive-care unit, he writes Friday in a Bloomberg opinion piece.
“Portugal’s need for emergency assistance became inevitable last month once its parliament rejected the government’s plans for yet another round of austerity," El-Erian (left) writes. “Former Prime Minister Jose Socrates’s resistance to seek a bailout became untenable in the face of credit-rating downgrades, deterioration in market spreads and access, and the added balance-sheet strains on Portuguese banks.”
With help coming from the European Central Bank, El-Erian writes, Portugal will now access emergency funds from other governmental sources to meet its debt obligations and to reduce the probability of a banking crisis.