Portugal surrenders

We've just found another victim. His name is Portugal. Portugal gave up its own efforts to solve the financial chaos and asked the EU for help. Portugal is the third country following Greece and Ireland to call on a bailout after the Lehman crisis.

Portugal asked for a bailout Wednesday to relieve its crushing debt, joining Greece and Ireland by becoming the third European nation to ask for outside help amid a bruising European financial crisis.

Prime Minister Jose Socrates went on national television to announce that Portugal must take international assistance to save its rapidly deteriorating economy, after months of insisting that he would do everything possible to avoid a bailout.

Socrates said his caretaker government asked "for financial help, to ensure financing for our country, for our financial system and for our economy."

He did not say how much Portugal would seek, but analysts have predicted Portugal will need up to €80 billion ($114 billion). That amount is bearable for Europe's finances unless other nations — notably Spain — end up asking for help.

So, who's next? Among PIIGS countries, Greece is down, Ireland is down, and this time Portugal is down. Only two countries are left: Spain and Italy.

Among those two countries, Italy is one of the G7 countries, and looks like too big to be overwhelmed by market forces, though its government debt to GDP is the highest in Europe.

The yield spread between Italy's and Germany's bond, the measurement of markets' jitters, hasn't widened so much unlike other eurozone peripheral countries. Italy may have some time until it's exposed to brutal market forces. But before dealing with a debt issue, it's urgent for Italy to do something to this guy.

I bet Spain is the weakest link in the eurozone. Spain's banking sector is burdened with a huge amount of bad loans as a result of the burst of the housing bubble. Let's make a rough estimation. Given the trend line of total credit to GDP ratio between 1996 and 2005, the country is estimated to shoulder as much dud loans as 10% of GDP in 2010.

Though the country's government debt to GDP is much less than Germany, Spain is vulnerable in terms of economic growth, which makes it more complicated to pay back. It contracted 0.1% last year, while other countries including Italy grew handsomely. It is one of the three countries in the eurozone which contracted in 2010. The other countries are Greece and Ireland. The EU predicts a subdued growth for the country this year. Spain has a definite lack of growth strategy.