"Portugal’s €78bn bail-out from the European Union and the International Monetary Fund has too much cash and too few conditions. The EU, playing good cop, is providing two-thirds of the funding (the total package amounts to 45 per cent of Portugal’s gross domestic product) and the IMF, as bad cop, one-third. This reflects a troubling imbalance between the two lenders of last resort. If ever an economy needed less of Europe and more of the Fund, it is Portugal.
Portugal has wasted its decade in the eurozone. The economy enjoyed a small growth spurt before joining, thanks to the reforms needed to ensure that Lisbon qualified for membership. Yet between 2001 and 2007 its economy grew by only 1.1 per cent a year, according to Capital Economics. That compares to over 5 per cent annually in Ireland, and, although it is about equivalent to growth rates in Italy and Germany in the period, the Portuguese economy remains both poorer and less industrially developed than those two core eurozone economies. Lisbon has a huge job to do to catch up with the rest of Europe. Yet José Sócrates, caretaker prime minister, gave no hint of this in announcing the bail-out late on Tuesday. In comments that smacked of complacency and one-upmanship, he seemed to suggest that resorting to a huge rescue package would be relatively pain free. There has been speculation that the EU and the IMF fought over how tough the bail-out’s terms and conditions should be. It would be nice if this were true: given the scale of the structural adjustment it requires, Fund officials should have been itching to get their hands on the Portuguese economy, which resembles an emerging market. A dose of Washington Consensus medicine is precisely what Portugal needs."