(see also article on Bank of England and Euro Interest rate change)
Update – 08/04/2011
Today European finance ministers meet in Hungary to decide the package to bail out Portugal. The formal request for help has now been received.
The problems though are getting more complex as people realise the divisive nature of this crisis. There are those who are calling for Osborne to be far more robust in defending the UK in its financial exposure to bailing out those in the Euro zone. While those negotiating the package have to make a political calculation that any incoming Portuguese government will accept the terms and will not come back to renegotiate it.
This is highly complicated, as there are those who are now questioning the whole Euro zone project with the historical perspective showing how monetary policy over the past decade has not been consistent with the integration of countries economic positions and fiscal arrangements.
As explained by Stephanie Flanders interest rates were far too low for Ireland and the southern Euro countries, yet at the same time those countries not benefiting from a boom borrowed massively.
Political integration, which has halted, is also causing concern as the Euro zone pulls in different directions, as a central economic policy is inconsistent with national sovereign democratic states.
Democracy itself is being challenged as states have to go cap in hand to the European Central Bank and the IMF to accept financial help and fiscal arrangements and conditions in return for this help. Something developing countries were loath to do prior to the credit crunch, because of the devastating nature of IMF terms and conditions caused to their countries when they were forced to privatise education and health systems and deregulate financial markets. How the worm turns.
The acting Prime Minister of Portugal has confirmed this evening that a further bail out will be sought to save the economy and plug the gap in the finances.
The Euro zone countries will now bail out Portugal as it struggles to deal with the interest rates to pay back existing loans.
Jose Socrates who was unable to get through Parliament the austerity measures needed to deal with their deficit, has now formally requested help from the EU. Another bail out beckons as Portugal heads for an emergency General Election in July.
Another Domino falls as Portugal becomes the 3rd country after Greece and Ireland to reach for a bail out. It is reported that Portugal will need 80 billion Euros for the bail out and the IMF will also be involved.
The next Domino is the big one. If Spain gets into trouble it will be too big to bail out and will have catastrophic affects on the Euro Zone and the whole European economy.
The UK is reeling at the moment from bad news after bad news economically as growth forecasts are continually down graded and confidence in business, retail and the public dips still further. The news that the UK will be liable for yet more bail out loans to the tune of maybe £4.4 billion will not go down well with the public who seems to be still bailing out the banks 3 years on from the initial crisis.
At the moment most economic analysts are not forecasting that Spain will ask for a bail out, yet many are putting pressure on the European Central Bank and the Euro by continually speculating that the Euro is failing as a currency and concept.
As they say, watch this space as the domino effect continues.
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