Portugal’s credit default swaps surged, to 549 basis points, after Friday’s sovereign bond action saw Portuguese debt jump almost 19 basis points and hit a 4.401% spread over 10-year German bonds—
Reuters is reporting that Germany, France, and other eurozone members are pressuring Portugal to get in line with Ireland and Greece and take a bailout from the European Financial Stability Facility—
—in other words, after last spring’s exciting blockbuster, EuroCrisis: Greek Gobsmack!, and then last December’s mega-hit sequel EuroCrisis II: Dublin Debacle!, it’s now time for . . .
EuroCrisis III: Portuguese Pooch-Screw!
Notice: Portugal isn’t in crisis mode—yet. So it’s looking like the European Central Bank and the European Union are pre-emptively trying to get Portugal to take a bailout.
Reuter is reporting that a Portuguese bailout would be in the neighborhood of €50 to €100 billion, according to unnamed sources—but that’s no secret (and vague enough to be rather insulting: €50 to €100 billion? Ya think?).
Like Ireland, which is roughly the same size, I’m guessing at this point that Portugal will need around €75 to €90 billion—but that’s a guess: I’ll have an update later today with more precise figures for an estimate.
How will this impact the markets?
Well, the bond markets worldwide have already priced in Portugal’s bailout—that’s been in the cards since Ireland took the Long Swan Dive last December. And Belgium is looking more and more likely to follow suit—especially as they’ve gone for over 200 days without a functioning government. (Talk about a failed state! And it’s the home of the capital of the Euro-weenies! Then again, D.C. is a mess too—remember Mayor Marion Barry? Hookers and crack, a stone’s throw from the Capitol!)
But I digress: As I’ve written extensively, all that matters for the eurozone’s survival is Spain: It’s troubles are more immediate than Italy’s—the other big screw-up in the eurozone—and like I say, Spain is big: Half the size of Germany. Simply too big to bailout.
How Spain is sorted out is the issue, as to whether the eurozone survives or not. As I’ve argued extensively, the best solution that would maintain the core stability of a Franco-German monetary (and therefore de facto political) union is for the economically weaker nations on the fringe of the eurozone—the PIIGS plus Belgium—leave the euro and go back to their local currencies.
The nightmare is that Germany leaves the euro, and the whole continent becomes a free-for-all.
We’ll have to see how that movie plays out:
For now, remember: Portugal, and Belgium, are merely speed bumps on the road to the Euro-pocalypse.