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

Sean Williams
April 7, 2011

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 (<