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Ah yes, the euro zone crisis. Amid the noise over quantitative easing, the turmoil in Cairo and the comings and goings of a certain Mr. Snowden, Europeans could be forgiven for forgetting that their little local difficulty carries on regardless.

The resignations of two ministers from the government in Portugal this week are a reminder of the rising political cost of austerity and the latest and most serious setback to that country's efforts to cut its way back to financial health.

Portuguese stocks were down 7 per cent on Wednesday and bond yields rose, as investors pondered whether Lisbon was about to go the way of Athens. At the moment, the answer to that question is no. Portugal's finances are in a different league from those of Greece. True, Lisbon faces €10-billion ($13.7-billion) of bond repayments in September, but it has the liquidity to do so and has achieved about two-thirds of the fiscal adjustment necessary to bring its sovereign debt level under some kind of control.

The yield on 10-year Portuguese bonds jumped more than 100 basis points early on Wednesday to nearly 8 per cent. But it later fell back to nearer 7 per cent – and is nowhere near the 16 per cent level it touched early in 2012. Unhappily, however, Portuguese bond yields remain about the same level they were at when its €78-billion bailout was agreed in early 2011.

The reality is that, apart from its modest fiscal adjustment, Portugal has made little progress in restoring its underlying economic health. Structural reform is patchy. Legal and other setbacks have weakened the original terms of the bailout. Its economy lacks the industrial pillars needed to revive growth and employment. With each setback, its chances of emerging from its bailout conditions next year recede and the chances of a restructuring of its sovereign debt, with Greek-style private sector involvement, rise.

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