Thursday, April 07, 2011

Portugal: so what are the options?

Despite Portugal asking for a bailout there is still massive uncertainty over what form a bailout would take and how large it would need to be. Below we have broken down the potential size of the bailouts and what funding needs they could cover in Portugal. We have also looked at what amount the UK would be liable for in each (as outlined in our briefing on the Portugal bail-out published the other week):

Total cost of a Portuguese bail-out: €60bn
Debt maturing this year = €12.3bn (Short and Long term from June onwards)
Debt maturing in 2012 and 2013 = €17.25bn (Long term only)
Deficit for the next three years = €28.3bn (2011 - 2013)
(This leaves €2.15bn leftover, which could be used to aid the banking sector, or simply to allow some room for manoeuvre within the bail-out)

This is likely the lowest viable level for a bail-out package since it only just manages to cover Portugal up to the end of 2013. Any lower and the money would not be sufficient to cover Portugal’s costs for a reasonable amount of time.

Total cost of a Portuguese bail-out: €70bn
Debt maturing this year = €16.8bn (Short and Long term from April onwards)
Debt maturing in the next three years = €23.8bn (Long term only)
Deficit for the next three years = €24.74bn (Apr 2011 – mid 2014)
Banking sector aid = €5bn

At this level Portugal could be taken off the markets from now until mid 2014, we expect a full bailout of Portugal to be of this magnitude (possibly up to €75bn)

Total amount of a Portuguese bail-out: €80bn
Debt maturing this year = €16.8bn (Short and Long term from April onwards)
Debt maturing up to the end of 2014= €30.4bn (Long term only)
Deficit for the next three years = €27.1bn (Apr 2011 – end 2014)
Banking Sector Aid = €5.7bn

An €80bn bail-out package could take Portugal off the market until the end of 2014. This includes covering the debt as well as the deficit from now until the end of 2014. There would also be scope to provide the banking sector with €5.7bn to aid recapitalisation or to encourage lending to households and SMEs. This will be a harder sell to some of the Triple A rated countries, especially if they believe Portugal could make do with less.

Total amount of a Portuguese bail-out: €90bn
Debt maturing this year = €16.8bn (Short and Long term from April onwards)
Debt maturing up to the end of 2014= €30.4bn (Long term only)
Deficit for the next three years = €27.1bn (Apr 2011 – end 2014)
Banking Sector Aid = €15.7bn

The extra funding here could be put towards covering or reducing some of the short term debt which may still be required for unforeseen funding costs over the three years. This amount could be floated as a way to make sure there are no renegotiations or shortage of funding as seen in Greece and Ireland.

Obviously, the amount that the UK would be liable for increases with the level of the bail-outs, however, there is still a very large range given the various structures which the bail-out could take:


It is important to note that any bail-out would not impose direct costs onto the UK, other than the cash contributions which the UK makes to the IMF. However, a bailout is still significant for UK taxpayers, as it effectively requires them to underwrite the debt of peripheral eurozone economies. The liabilities also significantly increase the level of UK exposure to these economies. In any case, if a firm took on large liabilities they would need to be declared in its accounting procedures and would be taken account of by anyone who assessed the financial state of the company. The same should definitely be true of governments.

There has also been talk of bridge loans, see our previous post for a discussion of that issue.

1 comment:

Anonymous said...

Would we have signed the maastricht Treaty if we had known we had to bail out these countries. Jane Wallen