Will Greece and Portugal Reignite the Euro Crisis?

Portugal and Greece are stoking the flames of another euro crisis: the Portuguese government seems to be falling apart and Greece received an ultimatum on receiving more funds.

Following in Greece’s footsteps, Portugal’s coalition is being tested with the resignation of several prominent officials.

Secretary of State for Treasury Maria Luis Albuquerque replaced Vitor Gaspar at Portugal’s Ministry of Finance. The move prompted Paulo Portas, who leads the CDS party crucial to the Portuguese coalition, to offer his resignation, fearing a continuation of austerity policies that appear to falling out of favor, even by the coalition government.

Fatigue from higher taxes and lower spending will not solve Portugal’s current predicament, as the future of their bailout depends on continued political resolve and fiscal restraint. While Prime Minister Pedro Passos Coelho tries to hold the path in order to meet the terms of the European troika, the 78-billion euro bailout his country accepted is looking ever more on the rocks.

Coelho tried to calm onlookers, saying in a speech, “I will try to clarify and guarantee with the CDS party all the conditions for the stability of the government and to proceed with the strategy of overcoming the nation’s crisis.” In a further attempt to calm markets, he indicated he will not resign. He did not accept the resignation of Portas, and will instead look to work out differences with his ally.

The troika of lenders supporting Greece and Portugal — the European Union, European Central bank, and the International Monetary Fund — along with larger markets, are in need of calm, as they have the ability to make life miserable for the cash-strapped country. The group of lenders recently told Greece to make needed changes — or else.

Markets have done their part to Portugal as well, pushing 10-year notes from the government above 8 percent and making the fiscal situation even tougher, though the government maintains it has sufficient funds to make payments due in September. Portugal started reissuing bonds in May and plans to end next year in June.

While political weakness has been an issue in Greece, where the country has failed to meet a number of terms it agreed to in its bailout, the EU is putting a bit more faith in Portugal, despite the precarious situation of the current government.

Speaking on the nature of the situation, head of EU finance ministers Jeroen Dijsselbloem told lawmakers in The Hague that he assumes “problems within the Portuguese coalition can be solved, and that the coalition remains committed to the program.”

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