Will Propping Up Portugal Halt Spread of Insolvency in Europe?

ATHENS, Greece -- Following Greece and Ireland, Portugal, too, has requested a bailout from its European peers.

But will Spain, a larger economy with stronger significance to global finance, follow? And more important, has European aid done anything to solve what appears to be a growing solvency problem.

In answering at least the latter question, financial gurus like Yanis Varoufakis, a professor of economics at Athens University, are emphatic: No.

"From the onset of this crisis," he told AOL News today, "Europe's leading taskmasters have been behaving like compulsive gamblers, sinking more money into failing economies, hoping their roulette ball will finally land on a winning number."

Soaring sovereign debt has become a major global concern since 2008, when a series of U.S. bank and insurance company failures sparked a financial crisis that effectively halted global credit markets and required unprecedented government intervention.

European nations from debt-choked Greece to Britain have imposed sweeping budget cuts and austerity reforms to rein in runaway finances. Japan's nuclear disaster after last month's tsunami has exacerbated its world-topping debt load. And a stalemate in the budget debate in Washington has the federal government now dealing with the prospect of a shutdown.

To soothe market fears of a contagion spreading to Spain, European officials today said Portugal's aid request-- estimated at about $114 billion-- would be dealt with swiftly and effectively. Concerns, though, remain.

Greece's debt woes surfaced in late 2009, sparking a sovereign debt crisis that engulfed Ireland a year later and then Portugal. That forced richer economies like Germany and France to pick up much of the tab for the rescue packages. In return, they have insisted that Greece and Ireland slash budget deficits with onerous austerity measures that have strained their economies and finances, sinking them deeper into recession.

What's more, as "austerity drags down output," The Economist magazine recently warned, "their enormous debts -- expected to peak at 160 percent of the gross domestic product for Greece, 125 percent for Ireland and 100 percent for Portugal -- look ever more unpayable."

That's financial longhand for debt restructuring, a move that a growing number of economists and financial experts have been increasingly arguing for as a way out of Europe's debt woes.

"Europe has made a huge investment into these countries, and it's unlikely that they will let them fail," Varoufakis said. "But European leaders have been dithering on this [debt restructuring] issue for months. They have to finally start talking about the inevitable."

Indeed, experts argue, the Portuguese bailout may help firewall debt contagion and its geographic spread to Spain, but it will neither cure Europe of its debt woes nor ease fears of further problems in the European banking sector.

Portugal's problems, for example, differ greatly from those in Ireland, which has pledged to slash huge losses at its banks, and Greece, which allowed debt and deficits to soar thanks to decades-long practices of fiscal indiscipline, economic mismanagement and corruption.

In recent weeks, though, some officials have begun acknowledging in private that some form of debt restructuring for Greece may be unavoidable. On Wednesday, in fact, senior members of the ruling party lashed out at the government for drafting a fresh raft of austerity measures, than facing up to a debt makeover.

"Negotiate now!" Vasso Papandreou, a senior Socialist Party member and former European Union commissioner, told Finance Minister George Papaconstantinou during a heated parliamentary debate. "It's going to happen anyway."

Athens officials have publicly rejected such a plan, saying it would send Greek banks, which hold much of the nation's debt, down a calamitous course.