Risky reluctance

First Greece, then Ireland, and now Portugal. The small country in the south-west corner of Europe is the third domino in a long line of heavily indebted Eurozone countries. After hesitating for a long time, Portugal now needs to turn to the more solvent countries in Europe and take their emergency loans. The country is close to collapse.

The step, a blow to national pride and the credibility of the financial markets, comes too late. The EU had long urged Portugal to seek emergency loans from the European bailout fund. For every month and week that the indecisive Portuguese government let pass, the bailout became increasingly expensive. Additional debts and enormous interest rates accumulated in the market. Portugal will be repaying the costs of these mistakes for a long time.

It's always the same pattern. First, the debt piles up, then the credit rating sinks, and finally the government – whether in Greece, Ireland and now Portugal – fails to acknowledge the problem. And who is next in the row of dominos? Spain? Italy? Belgium? It's time to act sooner than in Portugal. The European Union should enforce a stress test for indebted countries to determine their actual financial standing. The earlier the truth about the debt crisis is revealed, the more affordable the eventual rescue. The affected governments dread this measure, of course, because such a disclosure always results in a change of government.

Portuguese voters will be facing tough austerity measures that are inevitably linked to the bailout. Angry voters will be hitting the ballot boxes on June 5, and there is little doubt that the conservative opposition will be victorious.

The finance ministers of the 17 eurozone countries are meeting Thursday in Budapest to discuss the debt and financial crisis. Portugal will determine the agenda. The ministers will finally need to talk about the debt restructuring of Greece, Ireland and Portugal. It is becoming evident that these countries cannot repay their debts even with the implementation of a bailout and draconian austerity measures. It is unknown how the debt restructuring will be organized or the effects this will have on the financial markets.

The private creditors, including German banks, are concerned because they will be partly responsible for financing the bailout. But German and European taxpayers will also be forced to contribute, not only because of the bailout, but also because the indebted countries and their banks will be supported by the complicated system of the central banks. Hundreds of millions of euros have been contributed, but the debt crisis continues despite all EU rescue efforts. The eurozone is not over the worst.

The situation in Europe also impacts developing countries. The European Commission determined this week that the EU's goals of increasing development aid in 2010 were not met because of the debt and financial crisis.

Author: Bernd Riegert /cn
Editor: Nicole Goebel