Portugal is starting to look more like Greece which only scraped through the latest review of its bailout. Two senior Portuguese ministers have resigned, creating political turmoil and spending cuts and tax hikes have contributed to the worst economic slump since the 1970s and record high unemployment of 18 per cent. "The hope was that Portugal, by being the second country to exit a programme after Ireland, would show that the cure works, that countries can recover", said Guntram Wolff, director of Bruegel, an influential think tank in Brussels.
Bond yields surged after the head of the Socialists said he wanted a renegotiation of the bailout. The next regular review of the economy by the 'troika' -- the European Commission, the European Central Bank and IMF -- has already been delayed by six weeks because of the crisis. Portuguese bond yields eased slightly this week, but at 7.32 per cent for 10-year benchmark paper, are still around their highest levels since December although that is much lower than early 2012's levels of over 17 per cent.
Some analysts also think that when Portugal needs more help from Europe, it is likely to include some element of losses for debt-holders, or private sector involvement (PSI), especially as it is set to happen after Germany's election in September.
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