Analysis: Portugal, Greece risk reawakening euro zone beast

Wed Jul 3, 2013 5:15am EDT
 
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By Luke Baker

BRUSSELS (Reuters) - A teetering Portuguese government has underlined the threat that the euro zone 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 78-billion-euro bailout it agreed with the EU and International Monetary Fund 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 International Monetary Fund 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 euro zone 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 European Central Bank President Mario Draghi made good on his pledge last summer to do whatever it takes to protect the euro via a bond-buying program.

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.   Continued...

 
A woman buys products in a grocery market in central Athens July 2, 2013. REUTERS/John Kolesidis