Portugal Under Pressure

Portugal's parliament is expected to reject austerity measures that are setting the stage for the possible collapse of the Socialist government a day prior to the European Summit. The problems could easily escalate because there is increasing concern that Finland, a triple-A rated economy, might not ratify the agreement because of the changing political tides in Finland. The Finnish government is under pressure from right wing parties that are opposed to more bailout support, a similar stance that is emerging across other leading countries within the European Union.

Finish support is crucial because of the high credit rating. It is one of six AAA-rated countries in the euro-zone that can provide strong influence in the decision making process as it relates to the fate of Portugal.

"The fear is that if Portugal failed to agree on austerity measures, we can potentially see the country forced into the EFSF," said Mary Nicola, currency strategist at BNP Paribas in New York, referring to the European Financial Stability Facility, a program set up to bail out failing peripheral economies. "There's currently a lot of concern on the Portuguese budget vote and the potential political implication for it."

The foreign bonds, currency pairs, and gold markets are providing indications of the overall sentiment of the European situation. The Irish two- and ten-year bond yields hit euro lifetime highs. The EUR/ USD spot market has been falling from its 1.42137 high that occurred at 6:30 a.m. EST. It is presently trading at 1.41223 and heading lower. The gold futures have been heavily swayed towards the upside with a brief break above 1441.

Prime Minister of Portugal Jose Socrates has said he will not be able to run the country if his plan is defeated. This potential upheaval could ruin efforts by European leaders to persuade nervous investors that everything is alright in the euro-zone and doom Portugal to accepting financial assistance like Greece and Ireland.