Portugal Reminds Us That You Can't Triple-Stamp a Double Stamp

Last night was like watching a scene right out of Dumb & Dumber:

"Triple-stamp, no erasies, touch blue make it true."

"No, no, no, you can't triple-stamp a double stamp!"

After telling the world for months that it would not need a bailout, Portugal's prime minister succumbed to mounting pressures from what he referred to as "prohibitive lending rates." Now the third European Union member in less than a year is seeking financial assistance from the European Central Bank.

The bailout comes as a surprise to only one country: Portugal. I had warned that the financial crisis in Europe was still a long way from being resolved last month, and now it appears that Portugal will cost the EU somewhere between $99 billion and $114 billion, based on initial estimates.

This bailout comes on the heels of two other large bailouts: Greece and Ireland. Thus far, the bailouts and subsequent austerity packages instituted in both of these countries have gone anything but according to plan.

In Ireland, with many banks now nationalized, the remaining banks still struggle with staggeringly bad loans and crushing debt loads. Bank of Ireland (NYSE: IRE  ) and Irish Allied Bank (NYSE: AIB  ) remain solvent, but only in part because the EU pumped so much money into the banking system. Fears are now growing that the initial 35 billion euros injected may not be enough.

Greece is suffering through many of the same issues. More concerning now is the impending interest rate increase from the ECB, which is trying to put a cap on inflationary pressures. For a country like Germany with 10-year rates under 3.3%, this isn't a worry, but for Greece, Ireland, and Portugal, which have 10-year bond rates of 12.7%, 9.4%, and 8.5%, respectively, any increase in rates makes borrowing money even tougher.

Portugal's request for a bailout now leaves the world's eyes on Spain. Spain has a considerably larger economy that could require a bailout larger than the combined total given to Ireland and Greece. The risk of investing in Spanish securities is everywhere. Banking giant Banco Santander (NYSE: STD  ) , which operates out of Spain and Portugal, is trading at a mere 8.1 times next year's projected earnings with a dividend yield north of 8%. Telefonica (NYSE: TEF  ) , a Spanish telecom powerhouse, is trading at only 8.2 times its trailing-12-month earnings, despite a dividend yield of 5.6%. Investors are simply unwilling to take any risks as the dominoes in Europe fall one after another.

For now, we can only hope that Portugal does pass stricter austerity measures, and can figure a way to get its economy back on solid ground. If Lloyd Christmas were here, I believe he'd say something like this to Portugal: "Now don't you go dying on me!"

Did the news of Portugal seeking a bailout surprise you? Do you see Spain also seeking financial assistance down the road? Share your ideas in the comments section below and consider tracking these stocks and your own personalized portfolio of companies with My Watchlist.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He wants to state for the record that no 1984 Sheepdogs were hurt during the writing of this article. He also would like to remind you not to forget about our friends in Japan who could use a helping hand. You can follow him on CAPS under the screen name TMFUltraLong. The Fool owns shares of Telefonica. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that requires no capital injections.


Read/Post Comments (6) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 07, 2011, at 7:36 PM, chochobeelai wrote:

    Actually reading this blog is actually more like a scene from Dumb and Dumber... I don't know who approves of these non sense articles.

  • Report this Comment On April 07, 2011, at 7:45 PM, candomarty wrote:

    I can't figure out why commentators such as this one keep lumping Spain and Portugal together (other than geographically). Yes, Spain COULD fail, but there also COULD be ski resorts in Jamaica in the next ten years. Spain has taken the fiscal austerity measures that Portugal stubbornly has not (leading to the recent resignation of their prime minister).

    Spain is NOT Portugal!!

  • Report this Comment On April 07, 2011, at 7:49 PM, TMFUltraLong wrote:

    And a few months ago these same people said Portugal was no Ireland...

    TMFUltraLong

  • Report this Comment On April 07, 2011, at 7:51 PM, chochobeelai wrote:

    @TMFUltraLong

    You have been reading/listening to the wrong people I guess because everyone else seemed to have begged them to take a bail out and implement austerity.

  • Report this Comment On April 07, 2011, at 7:53 PM, chochobeelai wrote:

    @Motley Fool

    Do I have to pay for better service here or is this the type of service I expect as a paid member? This is ridiculous.

  • Report this Comment On April 07, 2011, at 10:21 PM, ETFsRule wrote:

    "For now, we can only hope that Portugal does pass stricter austerity measures, and can figure a way to get its economy back on solid ground."

    Yeah, because we all know austerity measures have had a great track record lately of getting economies back on track (not so much)

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