“These people are mad. Here we are, making a huge effort to find a solution that suits their needs and they shoot themselves in the head”. I think that this is more or less what our partners in Brussels and Berlin are thinking about us. What they see is a suicidal country lacking direction, which has created a political crisis at the very moment this should be impossible.

None of this can prevent our immediate fate from being decided in the next few days. Today, March 23, when the austerity plan (PEC) could be rejected in Parliament. In the two days the Brussels European Council will last, our prime minister will show up (having resigned or not) without any bargaining room whatsoever. And, finally, the day after, it will be no longer possible to retrace our steps and the consequences will be upon us.

Europact the bargaining chip

No-one can foresee the reaction of the markets. But it is hard to envisage any scenario other than rising interest rates on our national debt and a fall in Portugal’s credit rating. With consequences that are well known. At a time when the country has to borrow more than 10 billion euros by June, when the banks can only get funds from the ECB and public undertakings cannot get investment from abroad. For anyone who finds it hard, in the midst of the political schizophrenia, to understand exactly what is at stake, it’s worthwhile recalling a few facts.

The Eurozone summit of 11 March was a turning point for Portugal. With guarantees from the ECB and the European Commission, the government managed to persuade its partners (i.e. the German chancellor) that it could ensure the necessary conditions to avoid outside help in the short term, like that given to Greece and Ireland.

There was another, equally important, side of the coin. The new conditions for accessing the provisional rescue fund that were negotiated at that summit would be kinder should a request for help prove unavoidable. Lower interest rates and longer amortisation periods, the possibility of purchasing primary debt. It was a kind of “two in one” that suited us, either to calm the markets or to act as a safe haven against future difficulties.

The bargaining chip was the adoption of the pact for competitiveness (now called the “euro pact”) and a firm commitment by countries in difficulty to comply strictly with deficit targets. On 21 March, Ecofin, meeting in Brussels, finalised the stabilisation fund that will come into effect in 2013 (the so-called European Stabilisation Mechanism), but said nothing about the new conditions for accessing the temporary fund currently in force.

Political crisis has cancelled out all the effort

It will be up to the European Council to change these conditions in a binding decision that ties up some remaining loose ends. For example, removing the last barriers erected by the countries in this brand new club that Brussels calls the “triple A” (Germany, but also Finland, Holland, Austria and, albeit grudgingly, France) by agreeing the terms in which help for countries in difficulty is extended in return for a commitment from the countries in difficulty to pull their weight.

We cannot yet know just how our partners will react to our Prime Minister’s new status on arriving in Brussels, nor the extent to which this will affect European Council negotiations. But one thing is sure: the political crisis has, in one fell swoop, cancelled out all the effort made so far. It doesn’t matter if the Social-Democrats [who give external support to the government] is right to punish the way the Prime Minister has gone about things, abandoning his duty to inform and to bargain on the home front. We had a lifeline within reach. We have managed the truly historic feat of opting for a shipwreck. We wanted to avoid the fate of Greece. But that could now be the unavoidable fate that awaits us.