Brussels bailout imminent as Jose Socrates resigns after austerity fails

The market currently assumes a Brussels Bailout is imminent for Portutgal.  Portuguese CDS spreads are just about 50 bps below Irelands, which has technically defaulted by accepting a bailout. They are also about at the 600 bps level that Ireland was at when they applied for a bailout.

Portuguese spreads are 350 bps above where Spains CDS spreads sit now, suggesting as we have stated here, that the Brussels bailout machine will stop with Portugal.  However, if Spain assumes the Cajas liabilities, then all bets are off.

Irish Spreads 613.09

Portuguese Spreads 559.45

All of this comes on as Jose Socrates, the Premier of Portugal has stepped down.  Socrates said he presented his resignation to President Anibal Cavaco Silva after parliament rejected the government’s austerity plan.  Socrates was against a bailout and so as parliament rejected all attempts for fiscal sanity to hold the day, he felt he had to go.  Via Bloomberg:
“If parliament decides on a motion against the stability and growth program, that means the government is not in a condition to make commitments internationally,” Socrates said on March 15. “That would mean a political crisis. In my understanding, the consequence of a political crisis is the worsening of the financing risks of our economy and would lead Portugal to request external intervention.”


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