...and why it's not quite kicking off in Portugal
I'm in Portugal, where the country's cost of borrowing spiked above 7% again yesterday, forcing the ECB to resume buying the government's debt. There have been strikes all week, but in marked contrast to the rest of peripheral Europe - and in defiance of Glenn Beck's global intifada predictions - it's all laid back. There was no picket line at the big commuter station yesterday, just a near total strike. You could hear the station clock ticking.
But the markets are worried for the usual reasons. Here the political debate is all about austerity, but it's between a vocal parliamentary opposition of Communists and New-Leftitsts (ie to the left of Communists) versus the Socialist government, which is backed by the right, which is labelled "Social Democrat". These names alone would have a commentator like Glenn Beck choking on his Cheerios, because the whole panoply is profoundly committed to Europe and the social model. The debate is which bit to chip away at to calm the markets. Nobody proclaims the shrinkage of the state, the rise of the Big Society, the benefits of austerity.
So what are the risks? Portugal is getting its budget deficit down - but by cutting a public sector which, since EU membership has kept the country buoyant, it risks provoking a new recession. Here, as in the UK, there is talk of rebalancing - but the biggest challenge is that they import more than they export. Industries are being devastated by the triple whammy of recession, falling public sector demand and the underlying shift of low-value production away form places like this into Asia.
There is no air of crisis but one of resignation and, despite the gaudy gentility of this utterly polite and fastidious nation, gloom. There are dole queues in every town: the faces are mostly those of migrants and the older workers. This reminds me of Britain in the 1980s - they crowd into small rooms on plastic seats to wait for their number to be called.
The big decisions about this country's future will be taken in Brussels now. WHat the markets were betting on, yesterday, is that Brussels will - as is now traditional in the choreography of EU sovereign debt woe - fail to act decisively, or agree a clear way forward.
With the CP and Left Bloc owning 20% of parliamentary seats - and 23% of the vote - and with all major parties tied into the austerity measures - there is what investors call a "non-negligible" political risk too: if the left's 23% crept up towards 30% that would place pressure on Portugal's ruling political class - many of whom were active in their own Egypt moment, the day in April 1974 when they brought down the right wing dictatorship of Salazar.
The speculator were out yesterday - but Portugal's real problem is not speculators: it's people who hold bonds for the long term benefit of savers and pensioners. They're getting out of Portugese bonds because 7% interest is not a high enough price for the risk they might not get some of their money back. Call it illogical, but that's what even big investment funds in the USA are starting to say.
See my report next week on Newsnight.