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Bad news in Portugal Add to ...

This can't be good news for investors already worried about a debt crisis in Europe. From AP: "Portuguese opposition parties defeated a government austerity plan on Friday, passing their own bill that lets the country's regions rack up even more debt. The move raised new questions about European nations' ability to control their swollen budget deficits."

So far, though, markets reflect some degree of calm - suggesting perhaps that investors aren't too worried about contagion. In late-morning trading, the S&P/TSX composite index was down 0.5 per cent and the S&P 500 was down just 0.1 per cent.





Of course, Portugal isn't the only country in focus these days. Spain, too, has been swept up in rising concerns about its deficits and its ability to service its debt. However, Paul Krugman, the economist and New York Times columnist and blogger, has some interesting things to say about this issue, and Spain in particular - arguing that the crisis has less to do with fiscal irresponsibility (in terms of debt to GDP) and more to do with the fact that the European monetary union has left Spain with little room to maneuver.

If Spain had its own currency, this would be a good time to devalue; but it doesn't," Mr. Krugman said on his blog. "The point is that this has nothing to do with a spendthrift government; what's happening to Spain reflects the inherent problems with the euro, which now more than ever looks like a monetary union too far."

This raises a point that has been discussed off and on over the past 10 years: Can the euro survive? If the current European debt crisis turns particularly nasty, the euro naysayers will be handed some potent ammunition. And that could be good news for the U.S. dollar.

 

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