Clouds gather over eurozone once again as Portuguese ministers quit
A teetering Portuguese government has underlined the threat that the eurozone debt crisis, in hibernation for almost a year, may be about to reawaken.
From Greece to Cyprus, Slovenia to Spain and Italy, and now most pressingly Portugal, where the finance and foreign ministers resigned in the space of two days, a host of problems is stirring after 10 months of relative calm imposed by the European Central Bank.
Portuguese Prime Minister Pedro Passos Coelho told the nation in an address late on Tuesday that he did not accept the foreign minister's resignation and would try to go on governing.
If his government does end up collapsing, as is now more likely, it will raise immediate questions about Lisbon's ability to meet the terms of the €78bn bailout it agreed with the EU and the International Monetary Fund (IMF) in 2011.
Portugal had been held up as an example of a bailout country doing all the right things to get its economy back in shape. That reputation is now harder to sustain and even before this latest crisis, the IMF reported last month that Lisbon's debt position was "very fragile".
Coming soon after the near-collapse of the Greek government, which has been given until Monday to show it can meet the demands of its own EU-IMF bailout, the eurozone may be on the brink of falling back into full-on crisis.
EU officials have been at pains to talk down any unrest, buoyed by the tranquility in financial markets since ECB president Mario Draghi made good on his pledge last summer to do "whatever it takes" to protect the euro via a bond-buying programme.
European Commission president Jose Manuel Barroso has spoken of the worst of the crisis being over, and the economic affairs commissioner, Olli Rehn, has often dismissed "doomsayers" who once predicted the euro would collapse.
But despite the desire to project calm, EU officials quietly acknowledge that all is not well and that any number of problems could throw the region back into turmoil.
"There are always issues simmering under the surface," said an EU diplomat who has been dealing first-hand with the crisis since it erupted in Greece in early 2010.
"It's far from over. The immediacy may have ebbed away, but I think we're all aware that under the surface, there's still a lot of stuff than can come back to bite us."
Portuguese 10-year bond yields spiked up to 8pc with reports of further ministerial resignations throwing the coalition government's future into peril.
Greece, which has resumed talks with its EU and IMF lenders, is every bit as alarming.
A privatisation process, which was supposed to help cut into Greece's debt mountain, has stalled and progress on public sector reform is faltering.
There are some suggestions that the EU and IMF may refuse to pay at least some of the €8.1bn bailout tranche on offer and dribble it out instead in order to focus minds in Athens.
With German elections looming in September, Angela Merkel's government is determined not to rock the boat beforehand.
Spain and Italy, two far larger economies, also present major risks, as do banking sector problems in Slovenia, slow reforms in Cyprus and a scandal in Ireland that has shaken confidence.
In a note to clients late last month, Italy's Mediobanca warned that the country would "inevitably end up in an EU bailout request" in the next six months unless borrowing costs could be kept low and the economy found some traction.
In Ireland, which has performed best of the rescued countries and is expected to emerge from its assistance programme later this year, the problems are more of reputation than implementation.
Transcripts of telephone conversations from 2008 have revealed how bankers at Anglo Irish Bank made light of the Government's decision to guarantee their liabilities, a move that ultimately saddled the nation with vast debts.
While Ireland's problems are likely to blow over, those in Portugal, Greece and Cyprus, which also has tough bailout conditions to meet, are clear and present, and those in Italy and Spain show few signs of disappearing. (Reuters)