Jose Socrates, the Portuguese Prime Minister had already introduced three other austerity bills in which the opposition had supported him. The fourth bill, which he tried to introduce this week, included raising VAT, cutting Public Sector pay by 5% and freezing pensions was obviously too much for the opposition and quickly led to his resignation. Two important finance raters, Moody's and S&P both lowered the country's credit rating, setting off fear of defaults on the 9.5bn payments due in April and June. This all means that Portugal will have a quick election. It will then have to try and re-negotiate the rate at which is will have to pay it's borrowing back. (currently standing at 7.5%)
Sound familiar, well it should. This practically mirrors the picture we have just seen with Ireland.All we have to wait for now is the request for an EU bailout. It is a shame that for some bizarre reason, Portugal, just like Ireland, have both waited so long before succumbing to the inevitable. It is obvious that considering the EU ministers have been meeting all week to sort out conditions for countries with a debt crisis requiring assistance, they are waiting for the Portuguese to admit that they are in trouble. There was a knock on effect for two of Spain's banks, Banco Santander and BBVA whose stocks took a tumble on Friday because of their lending to Portugal.
It is clear that the euro will not be allowed to fail. It would make much more sense if countries asked for help sooner rather than later. The debt will not get any lower or easier to pay if countries just stick their heads in the sand and hope. (We have been assured that Spain will not go this way, let us hope they are right.)
The EU enjoys the benefits of being in a big club when things are going well, now we will see just how strong the alliance is during the bad times.