The rejection of Portugal's Parliament for the new austerity measures and the subsequent resignation of Prime Minister José Sócrates, creates new dynamics in Europe's Future. It seems now, almost certain that Portugal will avail itself of a credit line from the EFSF. After all a central bank's purpose is to facilitate liquidity to the market, and why should a country not benefit from this service.
Although it may well be in Portugal's best interest to defect from the EU and the straight jacket which is being imposed on it by Europe's Central Government, the likelihood of such an event is low. Ultimately, Portugal will be sold on the credit line that it has access to from the EFSF. Alternatively, it will have to go to the open market, where interest rates will be punitive and probably close to ten percent for further bond issues.
I am uncertain as to why Europe's all costs approach, to support survival of the EU in its current state, is in its best interests. It pays a hefty price in opting to hold Greece, Ireland and Portugal's hand, and it is difficult to see the value of such support against the mounting costs.
The elephant in the room is Spain, which economist Nouriel Roubini describes as "too big too fail, and too big to bail." In Spain's case it is difficult to see the size of the pit or call a bottom.
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