This could be a perfect storm of a day for the euro zone.
Portugal’s prime minister will attempt to shore up his government after the resignation of his finance and foreign ministers in successive days. The latter is threatening to pull his party out of the coalition but has decided to talk to the premier, Pedro Passos Coelho, to try and keep the show on the road.
If the government falls and snap elections are called, the country’s bailout programme really will be thrown up into the air. Lisbon plans to get out of it and back to financing itself on the markets next year. Its EU and IMF lenders are due back in less than two weeks and have already said the country’s debt position is extremely fragile.
Given the root of this is profound austerity fatigue in a country still deep in recession a further bailout is increasingly likely. Portuguese 10-year bond yields shooting above eight percent only add to the pressure; the country could not afford to borrow at anything like those levels. President Anibal Cavaco Silva’s will continue talks with the political parties today.
Greece has until the end of the week to put together a detailed programme of public sector reforms to convince the EU and IMF to pay out an 8.1 billion euros loan tranche from its second bailout. That will go to euro zone finance ministers to peruse on Monday.
Without the money, hefty bond repayments due in August look a bit dicey though there are suggestions that the money could be handed out in dribs and drabs to focus minds.