Portugal

Portugal’s budget deficit is lower than in most other euro-zone economies. Since the start of the euro in 1999 it has been among the slower-growing economies in the club, despite being its poorest member. The result of this effect is that Portugal’s bond yields have soared higher than at any time since they join the euro.

Portugal will be the third peripheral euro-zone country to need a bail-out. It need and ambitious reform to result the deep-seated structure problems that have at the moment.   The country need to issue debt is only €2 billion or so a month. Although that is small by most measures, and the government may have enough cash to meet redemptions in April, Portugal could struggle to last until June. The markets are expecting action long before then. In mid-March Moody’s, a rating agency, downgraded Portuguese debt.

Portugal’s political turmoil and its urgent need for a rescue will now loom large at an EU summit this week, which may put off a deal to expand the bail-out fund and fail to sign a new “pact for the euro”. If EU leaders have to bail out Portugal, they may find they have already used quite a big chunk of their fund. The markets will swiftly move on to attack the Spanish. The bail-out fund can quite easily finance Portugal. It is not clear that it could deal with Spain.