After Portugal, fears more eurozone dominos will fall

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Now that Portugal has joined Greece and Ireland in the eurozone's bailout club, the single currency area will have to fight to keep more dominos from tumbling, with Spain next in the line of fire.

As European finance ministers enter long-scheduled weekend talks in Hungary, three out of 17 euro currency states are turning up shame-faced after calling in loans.

Portugal admitted late on Wednesday that it needs an emergency bailout, in an abrupt U-turn after weeks insisting it did not need external financial aid.

"A realistic size for a support package for Portugal could be in the range of 60-80 billion euros," said Tullia Bucco of Milan-based UniCredit Bank.

Analysts suggested 55 billion would be needed to cover sovereign debt and another 10 billion to recapitalise Portugal's banks.

In sending for the EU cavalry, Lisbon followed Greece, which landed a 110-billion-euro bailout last May, and Ireland, a 67.5-billion beneficiary.

The problem now, though, is that Spain, one of the European Union's big five economies, is left brutally exposed in a climate where credit rating agencies have been picking off one-by-one weak national governments whose debts carry a massive premium.

With each demand for emergency loans, the root problem of skewed finances and economic controls only comes into sharper focus.

"Procrastination is no longer an option" and "Europe has to arrest the spiral of bad news and inadequate action before it becomes a black hole," analyst Sony Kapoor of the Re-Define think tank told AFP after Portugal held its hands up.

The EU did try to fix what it recognised to be a structural problem -- a shared currency, but each to their own when it comes to economic levers -- within days of agreeing the Greek deal.

Germany, France and the rest then set up a fund to cover future bailouts, but that was tapped by Ireland before Christmas.

Before Dublin came calling, they also established parameters for a permanent system of dealing with countries that cannot manage their books.

"Attention will now focus on Spain," said Commerzbank analyst Christoph Weil. "While we believe chances are good that the country will not need external help, but there is no guarantee."

The hope was always that Spain -- where one in five remain resolutely unemployed and a property boom collapsed -- would trade its way out of trouble.

Spanish Finance Minister Elena Salgado denied that her country was at risk after Portugal went cap in hand to European partners, insisting that the government had carried out "deeper" reforms at "a faster pace" than Lisbon.

But the Spanish economy remains in reverse, and the fact it is much bigger than its Iberian neighbour means that any bailout for Spain would threaten the entire European house of cards.

Experts expect loans granted to Greece to need re-structuring, which means giving Athens much more time to pay them back as well as putting day-to-day finances in order.

The European Commission denies as much, but as with Portugal's needs, markets have been betting for months on just such an outcome.

Ireland too is pushing for a re-negotiation on its interest rates, and repayment term.

EU leaders are not due to gather again until June, after frantic spring activity that included an emergency eurozone summit last month.

But the eurozone core may well be called back to Brussels before then -- as market pressures combine with a dawning realisation that voters may forgive dithering even less than the writing of cheques.

Socialist Spanish Prime Minister Jose Luis Rodriguez Zapatero has already said he will not stand for re-election.

German Chancellor Angela Merkel, whose country pays the lion's share of bailouts, has seen her party take beatings in recent regional polls dominated by eurozone woes or anti-nuclear feeling after the natural disaster in Japan.

French President Nicolas Sarkozy must also answer to voters next year -- with totemic International Monetary Fund chief Dominique Strauss-Kahn still considered by many the principal threat to a second term at the Elysee.

© 2011 AFP

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