Portugal to muddle through - for now

Robert Peston | 14:29 UK time, Thursday, 24 March 2011

It looks to me as though Portugal will muddle through without a formal EU bailout for a while longer, for two reasons.

First, and forgive the statement of the stupendously, blindingly obvious, a sovereign state can't be rescued if it has not asked to be.
And Portugal's teetering administration, now serving in caretaker capacity, has not requested the lifeboat.
Second, even if it did tell other European governments that it needs help, at this stage all it would get probably is very short term "liquidity" support from the European Central Bank (ECB) - or rather a good deal more of that.
For some time, Portugal's government has been borrowing from its banks by selling them bonds, which in turn have been swapping the bonds for cash from the ECB (see my earlier notes on this).
And the ECB has also been endeavouring to put a floor under the price of Portuguese bonds, by buying them in the secondary market.
The ECB is increasingly uncomfortable about propping up the Portuguese state in this way. It doesn't do wonders for its reputation as a monetary purist. But it can probably stand the humiliation a while longer.
The understandable consensus among European leaders is that it would be pointless negotiating a long term bail out with Portuguese ministers who may not be in office in a few weeks.
That is the lesson for EU leaders of their Irish rescue mission - where they agreed a bailout plan with the previous government only to see the new government try to unpick it.
With a Portuguese general election looming in a few weeks, far better to negotiate the rescue loans - and corresponding measures to strengthen Portugal's banks and public-sector finances - after a new government has been chosen by Portugal's people.
So, as is the way with the eurozone's fiscal and banking disease, each new shock is met with aspirin and sticking plaster, rather than substantial major treatment and rehabilitation.
There is the small matter of €4.23bn (£3.7bn) that Portugal has to repay to lenders, holders of its bonds, next month.
But, as I've said, some kind of ECB temporary fix seems highly likely, according to official sources.
As for when the proper rescue comes - and officials tell me it certainly will come - the scale of loans may be around €80bn or £70bn, provided by eurozone and IMF.
Britain's contribution will be minimal and indirect. The UK is exposed via its 12% implicit share of the EU budget.
Only in the event that the Portuguese financial crisis exhausted the available money in the eurozone's bail out fund - which it won't - would the UK become liable.
But if other bigger eurozone states run into difficulties (you know the names and flags) Britain could yet find itself exposed.