Should Britain pay for a Portuguese bailout?
In all the excitement about a whole penny being taken off fuel duty, we should be careful not lose perspective of the bigger picture. As the budget was being delivered yesterday, Portugal entered . It now seems virtually inevitable that the country will take a bailout from the EU. This makes it the third country, after Greece and Ireland, to seek a bailout. Many argued that those bailouts would create a moral hazard, encouraging more countries to take bailouts. Sadly, Portugal looks like a case in point.
Portugal鈥檚 crisis is more comparable to Greece鈥檚 than Ireland鈥檚, as Ireland鈥檚 budgetary crisis was brought to a head by a banking crisis, whereas Greece and Portugal鈥檚 crises are almost entirely due to poor budget discipline. And the Portuguese government fell yesterday because parliament rejected its fiscal austerity plan (which might have allowed Portugal to avoid a bailout) as being too harsh. In other words, this bailout can鈥檛 even be blamed on bankers 鈥� the fault lies with Portugal鈥檚 political class, for maxing out its credit card and refusing to pay the price of austerity.
The obvious and crucial question is: why should we pay for this bailout? The case for the Irish bailout 鈥� the British banks have so much exposure to Irish ones that really this was a cut-price bailout for ourselves 鈥� doesn鈥檛 work here. British banks have very little exposure to Portugal (though Spanish banks have quite a lot 鈥� , according to the Bank of International Settlements).
What鈥檚 the cost for Britain in this? that we鈥檒l end up spending between 拢3bn鈥撀�4bn on any bailout that Portugal gets, which is about as much as it would cost to raise the tax-free allowance by another 拢700 (or to cut the fuel duty by a bit more, if the government wants positive headlines). The Portuguese are in the mess they鈥檙e in because, frankly, they've failed to balance their books. British taxpayers are already paying for fiscal recklessness at home 鈥� why should they have to pay for it abroad as well? As with the banks, so it is with the eurozone countries 鈥� one bailout is leading to many, as the slip away while the rest of us pay for their mistakes.
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