Any Portugal In A Storm, Part 2

As widely expected, Portugal's parliament has rejected draconian austerity measures, and as a result Prime Minister Jose Socrates has resigned, leading many to speculate the next step is an EU bailout of the country.

Portuguese Prime Minister Jose Socrates tendered his resignation after plans to cut the budget were rejected by parliament, pushing the country closer to an international bailout.

President Anibal Cavaco Silva said late yesterday he will meet the main parties on March 25 and the government will retain its powers until he accepts Socrates’s resignation. The vote came hours before European Union leaders meet in Brussels to sign off on measures aimed at drawing a line under the region’s sovereign debt crisis.

The risk is that investors dump Portuguese bonds in the face of a political stalemate that delays the negotiation of a rescue package, which Royal Bank of Scotland Group Plc estimates may be worth around 80 billion euros ($113 billion). The cost of insuring Portuguese debt against default is near a record high.

“It’s pretty inevitable” that Portugal will need a rescue, said Jacques Cailloux, a London-based economist at Royal Bank of Scotland Group Plc. “The market will deteriorate in the absence of other measures going through. There is obviously the risk of further downgrades, which will become anticipated by the markets and be a self-fulfilling prophecy.” 

Everyone's expected this, the only question is how quickly the bailout can be worked out and how close to that 80 billion euro number the bailout will be.  It could be as soon as this weekend, depending on how that EU debt crisis meeting goes today, but you can expect that will be the main topic in Brussels.

That will make three countries on the EU bailout train.  And there will be more before the year is out, I would suspect.