Portugal is "quite likely" to be the second eurozone country to need an international bailout after Greece, Spain could suffer liquidity problems but not a default, while Italy is relatively safe. 

According to the London Financial Times  In Italy's favor is the high level of savings held by Italians, the relatively low level of household debt – 57 per cent of disposable income in 2008. 

Portugal Next for EU Bailout, Italy Safe, Spain Maybe, says Expert 
Earth Times; By Dpa Tuesday, May 4, 2010

Brussels - Portugal is "quite likely" to be the second eurozone country to need an international bailout after Greece, Spain could suffer liquidity problems but not a default, while Italy is relatively safe, a leading European economist said Tuesday. Daniel Gros, director of the Brussels think-tank Centre for European Policy Studies (CEPS) and former advisor to the European Commission on economic and monetary union, said Portugal's situation, "from an economic point of view, is like Greece's." Athens was given a 110-billion euro (146 billion dollars) lifeline by euroarea countries and the International Monetary Fund (IMF) over the weekend, to help it avoid default on its rocketing debt. "The Portuguese will need some money sooner or later, I think it is quite likely," Gros said at a briefing in Brussels, mentioning 100 billion euros as a ballpark figure. Portugal's gross external debt - a measure of its vulnerability to default - reached 226 per cent of its gross domestic product (GDP) in the third quarter of 2009, Gros stated. Greece's was 167 per cent, Spain's 164 per cent, Italy's 121 per cent, while in Hungary it rose to 141 per cent in 2008, the year the country was bailed-out by the European Union and the IMF. Gros said Spain was less exposed "because it has a much higher domestic saving rate", meaning that its citizens would buy most of its government bonds. But he warned that Spanish banks may face a liquidity problem if their European counterparts decide they are no longer credit-worthy due to the losses incurred as a result of the housing bubble going bust. In that case, Gros said, the European Central Bank (ECB) would have to step in to prevent a meltdown of the Spanish financial system. The ECB has already intervened to help Greece, saying it would accept its bonds as collateral even if they have reached junk status, according to international rating agencies. "Italy is further away (from the crisis) because they have an even higher savings rate so the government can be financed by Italians," Gros indicated. But he warned that "in the next decade it could get very tough" for the Italians, due to their endemic low-growth problem. If Italy's economy continues growing at a slower pace than interest rates, Gros explained, its government will have to keep cutting spending or raising taxes to reduce the ratio of debt to GDP - currently standing at 115 per cent while euroarea rules recommend it stays below 60 per cent. "It is like rowing against the current, and after a while you get tired," the CEPS director said. The German-born economist also said Portugal could slim the chances of an emergency rescue only by adopting preventive "tough" austerity measures. But he added that they would have little credibility in front of the markets if similar measures promised by Greece would not be implemented because of a popular backlash. "The success of the Greek plan is key," he stressed. In exchange for the bailout, Greece was told to reduce its deficit by 6.5 percentage points of GDP in 2010, while in February it was told it only needed a 4 point correction. Gros said the European Commission and eurogroup were at fault then for endorsing "clearly insufficient" cuts, arguing it was their laxity which fueled market jitters over Athens' insolvency, rather than Germany's delay in approving the EU/IMF bailout. 

http://www.earthtimes.org/articles/show/
321948,portugal-next-for-eu-bailout-italy-
safe-spain-maybe-says-expert.html
 

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