March 24, 2011
Portugal's parliament rejected a new government austerity plan Wednesday, spurring the resignation of Prime Minister José Sócrates and setting off a new phase in Europe's sovereign-debt crisis.
The failure to pass the measure, after a heated debate, threatened to push already-high government borrowing costs to unaffordable levels and force Lisbon to seek a bailout.
That would make Portugal the third among the 17 nations that use the euro to apply for help from other members of the European Union and the International Monetary Fund. Greece and Ireland went first.
The events in Portugal could provide an indication of whether the euro zone's debt travails will be contained within three small countries or begin to undermine bigger economies.
There's plenty of money in Europe's bailout funds to handle Portugal's likely financing needs over the next few years, running into tens of billions of euros. However, if Portugal loses access to market finance, as now seems likely, the result may be to shift attention to Spain, the euro zone's fourth-largest economy and the one investors have identified as its next-most-vulnerable, partly because of its weak banking system.
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