Portuguese banks are set to be the next to require massive state handouts in the latest instalment of the global financial crash that first emerged in 2007. Although massive government borrowing by countries like the USA and the UK, that still enjoy their own currencies helped stave off a complete collapse; counties in the Eurozone have been unable to act.
This process has been most dramatic in Greece, where crippling austerity has been imposed on the Greek people to – in effect – reward German and French banks for making insanely optimistic loans to a Greek government that could never hope to pay them back. However, Greece is just the tip of a Eurozone iceberg that will ultimately result in the collapse of the Euro – either in its entirety or through the withdrawal of most of the southern and eastern European states.
According to Will Martin at Business Insider, Portugal is set to experience the next European financial disaster:
“Portugal’s largest bank, Caixa Geral de Depósitos (CGD), an institution that holds nearly one-third of all deposits in the country, is on the brink of destruction following a horrendous first quarter of the year. The bank is thought to need a cash injection of as much as €4 billion (£3.04 billion, $4.45 billion) to rescue it from serious difficulties. That number amounts to roughly 2.5% of Portugal’s GDP.”
While bailouts to individual banks in individual countries continues, the Eurozone itself is becoming a basket-case; with the Central bank forced to set negative interest rates and to pump quantitative easing (i.e. money printing) directly into large European corporations. This all helps to stave off the inevitable collapse for a few more months. But as Martin observes:
“Clearly, Portugal isn’t the only European nation in financial difficulty — Greece is barely scraping through continued talks with its creditors, Italy has huge problems in its banking sector and massive political issues, and France’s striking workers highlight systemic problems with its labour market — but Portugal appears the closest to a new economic crisis.”
The real problem, of course, is not with countries like Portugal and Greece, but with big European banks like Deutsche Bank that issued dodgy loans to sub-prime European states in the first place. Nobody in the European Commission (or global financial governance) cares a jot what happens to ordinary people in the Eurozone. They are, however, greatly troubled by the fact that sooner or later one or more of these states is going to default. When it does, the whole banking house of cards will come tumbling down.
Sooner or later, it will be the Euro itself that suffers a crisis of confidence as global investors wake up to the simple fact that European tax payers will never be able to pay back the money their central bank has been borrowing to plug the black hole of unsustainable debt issued by Europe’s largest banks. After seven years of crisis, more of the same failed bailouts for the banks and austerity for the taxpayers is wearing thin both politically and economically.