Jose Socrates, Prime Minister of Portugal, failed this week to get his country to complete the fiscal austerity program designed to save Portugal from defaulting on their sovereign debt. The truth is that no one cares about Portugal. The big concern is Spain. Portugal is a relatively small economy and EU bailout fund could easily accommodate Portugal's needs (and probably will do so soon). But, that leaves Spain. Spain's problems are so immense that the EU has no serious way of dealing with it.
Thoughts of Portugal lead to the contemplation of Spain, in true domino-theory progression. It is hard to see what the EU will do when Spain is the headline. That could be game over (and we haven't even begun to speak of Italy).
All of this is a policy of wishful thinking by the EU, of course. It is simply a matter of time until all the PIIGS countries (Portugal, Ireland, Italy, Greece, Spain) default on their sovereign debt and are forced to nationalize their largest banks. Why they think putting this off is a good idea is something of a mystery. It only gets worse with time.
The US is not far behind.