Bloomberg News

Greek ‘Shocker’ Stiffens Irish, Portuguese Resolve to Keep Euro

November 07, 2011

(For more on Europe’s debt crisis, see EXT4.)

Nov. 4 (Bloomberg) -- As Greece dices with its status in the euro region, Ireland and Portugal say they will do whatever it takes to remain wedded to the single currency.

European leaders raised the specter of a Greek exit this week when Prime Minister George Papandreou called for a referendum on the country’s latest bailout package. While he later signaled there would be no vote, governments in Dublin and Lisbon spent yesterday distancing themselves from Greece and proving their mettle as euro region members.

“If Greece left the euro region, they’d do everything to keep the currency region together,” Christoph Weil, a senior economist at Commerzbank AG in Frankfurt, said in an interview. “The example of Greece would be such a shocker that nobody else would want to follow voluntarily.”

Traditionally among the continent’s poorest countries, European Union membership helped lift the Irish, Greeks and Portuguese out of poverty before the euro cemented their new prosperity. All three have since been forced to turn to the EU and International Monetary Fund for financial aid.

Irish Prime Minister Enda Kenny said Nov. 2 that not fulfilling the bailout program would be a “disaster” for a country relying on overseas investment to escape the worst recession in its modern history. Portuguese premier Pedro Passos Coelho said his country doesn’t need a vote on the latest European rescue plan inked last week.

Not Greece

“We do not want to be confused with what is going on in Greece,” Passos Coelho said in comments broadcast yesterday by television station SIC Noticias.

UBS AG estimates a weak nation leaving the currency would cost as much as 11,500 euros ($15,819) for every person in the country, or 50 percent of gross domestic product in the first year alone. It would probably amount to as much as 4,000 per person in subsequent years, the bank said in a Sept. 6 report.

In Portugal, which joined the EU in 1986, income per head has risen about 30 percent since 2000. In Ireland, a member since 1973, it’s up 25 percent in the same time, even after the economy shrank by about 15 percent in the past three years.

“We’re too small a country to stand alone,” Brendan Hanratty, 65, a semi-retired farmer, said in Dublin. “For a small country, I don’t think they would be able to run the country without the euro. If Europe hadn’t given us the cash, we wouldn’t have the roads or the motorways, we’d have nothing.”

Greek Opposition

Papandreou reached out to the opposition yesterday about setting up a transitional government, indicating an agreement would secure aid and remove the need for a referendum on the euro. Finance Minister Evangelos Venizelos, who had opposed Papandreou’s vote plan, ruled out a plebiscite.

Ireland sought an international bailout in November when its banking crisis became too big to handle alone, six months after Greece’s first rescue package. Portugal then asked for aid after investors grew concerned that its economy wouldn’t grow quickly enough to allow it to pay debts.

Since then, both countries have hit the targets set for them, while Papandreou’s government struggled as riots broke out across Athens in protest at austerity measures. Neither Ireland nor Portugal has witnessed any serious violence.

“We should continue in the euro,” said Ana Maria Negrao, 66, a retiree, speaking in Lisbon. “It would be a disaster for the country to return to the escudo.”

Not Mediterranean

Both Ireland and Portugal have sought to define themselves by their differences with Greece.

“We have succeeded in the last couple of months in breaking the perception that somehow or another we were some kind of displaced Mediterranean country in the North Atlantic,” Irish Finance Minister Michael Noonan said in a speech in Dublin on Oct. 27. “We are not. We are a North European economy.”

Noonan said that any debt restructuring, let alone a euro exit, may hurt Ireland’s ability to attract overseas investment. Internet search engine Google Inc. and drugmaker Pfizer Inc. are among the U.S. companies operating in Ireland, driving the export growth that’s keeping the economy afloat after a real estate bubble burst in 2008.

“One has to keep in mind that the Greek situation is exceptional and unique,” European Central Bank President Mario Draghi said yesterday after he announced a surprise cut in interest rates. “We’re confident that the Irish government could comply with the measures announced and the Irish government said they would do whatever it takes.”

--With assistance from Simone Meier in Zurich, and Joe Brennan and Finbarr Flynn in Dublin. Editors: Rodney Jefferson, Tim Quinson

To contact the reporter on this story: Dara Doyle at ddoyle1@bloomberg.net; Joao Lima in Lisbon at jlima1@bloomberg.net;

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net


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