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EU Bust-Up Seems Closer As Portuguese Default Looms


What's next for Portugal after PM's resignation? Portuguese Prime Minister Jose Socrates resigned on Wednesday after parliament rejected his government's latest austerity measures, designed to help Portugal avoid having to seek an international bailout. Is a bailout inevitable? It looks likely. At around 7.8 percent, Portugal's 10-year government bond yield is well above the 7 percent level, which many analysts think is unsustainable in the long term. The five-year yield is even higher; similar inversions in the yield curve were seen for Greece and Ireland before they sought bailouts last year. After the rejection of the austerity measures, Portuguese yields could rise further unless a new government quickly comes up with a fresh austerity package – but forming a new government could take many weeks. Socrates and his Socialists firmly opposed a bailout, which would carry tough fiscal conditions; Portugal has bad memories of IMF-ordered austerity in the 1980s. But the main opposition Social Democrats (PSD) have not ruled out seeking international aid. PSD leader Pedro Passos Coelho has indicated he would seek political cover for any bailout by blaming the last government for it. Other, smaller parties are mostly against a bailout. – Reuters

Dominant Social Theme: Let's put this behind us. Thanks for the memories, Socrates. But, heck ... let's not worry. The banks are OK and so is the European Union.


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