Friday, April 8, 2011

The last

So, true to my prediction, Portugal has finally asked for a bail-out. The surprise is that they did it now, well before the June 5 elections due in that country.

Of course, as my readers know, my prediction was not based on knowledge of economics – though one does not need to know much economics to predict such an outcome – but to the denials of the politicians. Chief among those was Mr Barroso, the President of the European Commission and himself a Portuguese, who was (when I first wrote on the topic) at the forefront of those who denied vehemently that Portugal would need a bail-out.

These politicians may have learnt their trade from the planners of the London Underground where, as I have written before, 95% of the time, “No exit” actually means “short-cut”. But because it is only 95% of the time, there is a 5% chance that one will get it wrong, and hence the smug satisfaction of getting it right – presumably coupled to a release of dopamine in the brain, if neurobiological results on expectation and reward are anything to go by.

If I get a smug satisfaction from having predicted correctly, I am also of course very saddened by the enormous economic hardship that this will cause the Portuguese. Economists are now saying that the hardship would have been less if the Portuguese government had applied for a bail-out months ago, when the writing was on the wall. But economic predictions are not, at least in my experience, as reliable as predictions based on the opposite of what politicians say.

Economists are also now saying that Spain has a 20% chance of seeking a bail-out. I do not agree. Mr Zapattero, the Spanish Prime Minister, has not denied that Spain will seek a bail-out, from which I conclude that this will not be necessary. Only, and if, he starts denying it will I believe that this will be necessary.

We shall see.

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