Portugal and Spain ‘will tap bailout fund’

SPAIN and Portugal will “unavoidably” request money from the EU/IMF fund, according to one of Europe’s leading economists.

If that happens, the turmoil in the markets could also see Ireland avail of the fund.

Speaking ahead of today’s summit, where the economic crisis will be a focal point, Daniel Gros and a dozen other world-renowned economists united to warn EU leaders that they must fix the underlying problems of the crisis.

“Trying to muddle through would be like sleepwalking through a minefield” is their message to EU leaders.

They also predict the southern countries including Spain, Portugal and Italy are doomed to a 10-year recession while the northern countries will recover much more quickly.

Ireland too will climb out of the downturn thanks to being such an open economy with big exports.

The fund of €750 billion was set up to lend to countries having problems borrowing from the markets. Spain managed to raise the money they needed earlier this week, but paid dearly.

When asked if Spain and Portugal would borrow from the fund, Mr Gros, whose proposal for a European Monetary Fund was championed by the German finance minister, said “it’s unavoidable”.

“If Spain and Portugal goes [to the fund], so will Ireland. It makes sense.”

Ireland is in a different position, with the European Commission acknowledging earlier this week the huge cutbacks in spending amounting to 4.2% of GDP over last year and this year – far more than any other country.

However, despite having little difficulty in raising money, Ireland has had to pay increased sums for borrowing as a result of nervousness about other eurozone countries.

Sources have said Ireland’s attitude is that if Spain and Portugal tap the fund, they might as well avail of it also and be assured of borrowings at reasonable rates.

The sums being talked about are in the region of €380 billion for Spain, about €100bn for Portugal and something less for Ireland.