For months, it seemed that a bailout of Europe’s third-weakest economy was only a matter of time. Last week, the lame-duck government in Lisbon said it would make a formal request for aid from its European Union neighbors. In the end, the choice was simple: either borrow money on the open bond market for 10 percent interest, or ask for a bailout and hopefully see that rate fall by half. But many problems remain in Portugal and the two bailed-out nations, Greece and Ireland. The cost of goods made in those countries, for instance, remains high compared to, say, France and Germany, and without the option of deflating their currency to make exports cheaper, the road to recovery will be long, economists predict. All eyes are now on Spain, perceived to be the next domino in flagging EU nations. But Spain is a far larger economy than the other three, and it has already launched major austerity measures which appear to have won it some time with global investors. A rescue of Spain would be a major challenge for the EU, as it is thought to be both too big to fail and too big to bail out.
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