European summit: Leaders delay as Portugal falters

Protestor outside summit in Brussels
Image caption The start of the summit was greeted by protests against spending cuts across Europe

It wasn't meant to be like this.

Thursday and Friday were to be the days when European leaders finally signed off new rules to tighten the economic control in the financially troubled euro currency zone.

In spite of months of arguments and fudges over the terms, most of the plans are now in draft form. They await only debate over dinner tonight -- and final signature.

Yet once again, outside events have made it seemingly impossible to grasp the immediate objective: restoring a measure of calm and renewed confidence to the single currency and the fallback plan for any future rescues of financially wayward members.

The summiteers had to run the gauntlet of thousands of protesting trade unionists angry at present and future austerity measures being imposed on their members.

But that's just the start of it. Nothing the 17 can agree here in the next 24 hours seems likely to ease pressure on the debt markets now that the Portuguese government is in crisis and Republic of Ireland is threatening to make some of its bondholders take a haircut on their loans.


Once again, diplomats here are managing expectations.

We are constantly reminded by the corps of scurrying summit bag-carriers in the Council building that the 17 cannot offer to rescue Portugal unless it formally lodges a request for help.

Image caption Portuguese prime minister Jose Socrates resigned this week, but will still attend the summit

Yet the head of the main opposition centre-right Social Democratic party, Pedro Passos Coelho, repeated that he "hoped" one could be avoided.

The financial markets tell a different story. Record borrowing rates of around 8% on Portuguese government debt are simply unsustainable, with major bond auctions due in the next couple of months.

Something has to give.

Declining confidence

All along, Brussels has been trying to reassure the markets that the measures to be rubber-stamped at the summit will fund future bail-outs and curb the peripheral euro countries' high-spending ways.

But these latest events involving Portugal are rapidly undermining confidence. That's because the reason the Portuguese prime minister gave for his resignation was that his parliament wouldn't vote for austerity measures.

It has served to remind the debt markets that Portugal (and possibly other euro nations) may not be willing or able to commit to welfare and public expenditure cuts on the scale being demanded by euro heavyweights led by Germany.

All this only adds to the potential future burden on other euro members to keep the likes of Portugal, the Irish Republic and Greece afloat.

Sources here this afternoon were saying Portugal was unlikely to ask for help at the summit, although it could not be completely ruled out.

It will be interesting to see if the heads of government can possibly come up with anything new at their news conference tonight to provide the reassurance that Europe's lenders are still looking for.