Portugals Crisis - A New Crisis for the Euro Currency ?

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Portugal's parliament rejected a new government austerity plan Wednesday, spurring the resignation of Prime Minister José Sócrates and setting off a brand new section in Europe's sovereign-debt crisis.

Portugal's Prime Minister Jose Socrates, left, gestures beside Finance Minister Fernando Teixeira dos Santos throughout a parliament session in Lisbon on Wednesday.

The failure to go the measure, after a heated debate, threatened to push already-excessive authorities borrowing prices to unaffordable levels and power Lisbon to hunt a bailout.

That may make Portugal the third among the 17 nations that use the euro to apply for help from different members of the European Union and the International Monetary Fund. Greece and Ireland went first.

The occasions in Portugal might provide an indication of whether or not the euro zone's debt travails will doubtless be contained inside three small international locations or start to undermine greater economies.

There's loads of cash in Europe's bailout funds to handle Portugal's seemingly financing wants over the following few years, running into tens of billions of euros. Nevertheless, if Portugal loses access to market finance, as now seems probably, the consequence may be to shift consideration to Spain, the euro zone's fourth-largest economy and the one traders have recognized as its next-most-weak, partly due to its weak banking system.

A senior Spanish authorities official mentioned costs of Spain's bonds and different belongings may "face some temporary, speculative pressure" linked to Portugal's woes, however, as on prior events of intense market volatility, "Spain will continue transferring ahead with its reform efforts." These have included consolidation and recapitalization of native banks.

Portugal's crisis will be on the forefront of the agenda of an EU summit assembly in Brussels on Thursday. European leaders have spent current months cobbling collectively a complete package they hope will resolve as soon as and for all the euro zone's debt crisis.

Thursday's assembly is anticipated to settle a new submit-2013 bailout fund, in a place to lend €500 billion, or about $710 billion, and an accord to improve countries' competitiveness. But a call on enlarging the lending capability of the present bailout fund past its roughly €250 billion has been put off.

Portugal's Mr. Sócrates, who is predicted to function a caretaker prime minister till a model new authorities is shaped or an election held, plans to attend the Brussels summit, though his negotiating and coverage-execution powers will be very limited.

Portugal has come beneath quiet pressure from other European governments over several months to take a bailout, however Mr. Sócrates has resisted.

Citigroup economists mentioned Wednesday that a vote by parliament to reject Mr. Sócrates's austerity measures would mean rising political uncertainty that "would enhance market considerations and consequently...increase the chances that Portugal can be forced to just accept a formal EU/IMF bailout package."
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