Monteiro, Nuno & Sousa, Edurdo.
Conditional bailouts are a recipe for stagnation, social unrest and political turmoil – a co-ordinated debt default is preferable.
Faced with an increasingly dire financial situation, Portugal has started negotiating a bailout package with the European Union (EU) and the International Monetary Fund (IMF). It follows in the footsteps of Greece and Ireland, two countries where bailouts have proved ineffective. Still, few dare defend the most effective policy option in all three cases: a managed sovereign-debt default.
Such a default would allow the Greek, Irish, and Portuguese governments to push back their accumulated debt obligations, lowering the interest rates they serve, postponing reimbursement, and, if necessary, repaying only part of the capital they owe. Like personal bankruptcy – which allows an over-indebted individual to renegotiate reimbursement terms – a sovereign default allows countries to repay current debts according to future income expectations. A bailout, on the contrary, prioritises lenders by reimbursing them completely and abiding by the initially agreed-upon interest rates and repayment schedules, forcing the government to adjust future income to the weight of accumulated debt.
Πηγή: guardian.co.uk