Why does Portugal/Spain failure mean default for us?

zig

I often hear this being mentioned, im just wondering why? So lets say we get to a point that Portugal need a bailout, we have a similar situation to Ireland, then we reach a point that Spain or Italy needs a bailout. Why is this so significant to us? Ok so Spain is a massive economy and would need alot of money from the EU, what difference does that make to us paying back our debts or not?
Cheers in advance.

later12

Firstly, if the contagion has already spread to Portugal, and we are literally sitting and waiting for the bailour to develop. It is simply a matter of time.

Spain is different in that they are starting from a healthier point than any of the other peripherals and it is not inevitable (though I wouldnt bet anything against it) that they will be bailed out.

If Spain were to request a bailout, three questions would immediately arise:

• Is the EFSF & EFSMech large enough to support a Spainish bailout? the answer is no, not without far greater IMF support than has already been put forward. This answer severely weakens the Eurozone
• Is the contagion now likely to spread to Belgium and Italy? The answer is an unreserved yes. How the Eurozone could feasibily support such further bailouts is as yet not esablished. The answer may be a single European sovereign bond, but that as yet is unlikely and cumbersome to implement (treaties, etc). This answer weakens the Eurozone
• How much longer will core states support these endless bailouts? Already Angela Merkel's coalition partners have started to talk publicly about their unease about supporting further bailouts, and the bailouts have faced constitutional challenge in Germany where it is extremely unpopular among voters. This unease and lack of solidarity within Eurozone's strongest economy and within other core states further weakens the Eurozone.

To put it simply, a Spanish bailout calls into question the very future of the Eurozone, or at least of the membership of the peripheral states (PIGS) of that Eurozone. There is no current method for expelling Eurozone members (crazy, yes), and this means that in such an uncontrollable meltdown scenario, the Eurozone seems like an extremely unpleasant and insecure entity with which to conduct ones business or offer investment.

This may all lead to the end of the Eurozone (very unlikely) or a splitting up of the Eurozone (moderately likely), or the peripheral countries leaving the Eurozone voluntarily or subject to an enforced exit mechanism (more likely, especially if the domestic economies of the peripherals fail to show signs of recovery in 2011, or deteriorate more rapidly).

Leaving the Eurozone and going it alone would result in an innevitable, widespread default by Ireland unless we had another common currency (PIGS money) to fall back on, but at the moment that isn't a valid or likely option.
So that, basically, is how we could go from the present crisis to Spanish crisis, to Irish default.

lmaopml

later10, hope you don't mind me asking - but when do interest rates kick in for the Irish? Is it from when we actually draw down from the contingency fund, and the amount of same? or is it a case of 85billion interest straight away the minute we use the facility? Surely not, I don't believe it could be...



Also, I'm not crazy about the 'default straight away' brigade, and the euro is a lost cause brigade at the first sign of trouble, and their political undertones are almost obvious -

I know we have enough in the coffers to keep us going till mid next year to get our asses in shape fiscally...a necessity no doubt!


Is there a such a 'major' problem with waiting, playing the game and seeing what happens with a smaller draw down for the time being till we see the market landscape more clearly next year? which seems fairly wise imo...

...or are the people crying 'DEFAULT' straight away privy to something I'm not, or that I haven't versed myself on..

Why the panic right now from some to default right now...and the consequences of it are air brushed?


*Confused*

zig

Cheers for clearing that up later10