Turmoil in Portugal, one of the European Union's crisis countries, has raised fears that the carefully crafted path to recovery may be derailing.
Portugal's benchmark stock index swooned and its sovereign bond yields surged Wednesday on news that Foreign Minister Paulo Portas had offered his resignation. Just Tuesday, Finance Minister Vitor Gaspar quit.
Prime Minister Pedro Passos Coelho has refused Portas' resignation, but many fear the coalition government is unraveling. Gaspar — who authored Portugal's austerity program — and Portas are two high-ranking members of the CDS-PP, a junior party in Coelho's government.
Portugal can hardly afford to suffer a collapsed government and the ensuing ordeal to build a replacement.
The debt-swamped country needs outside help to survive. Portugal relies on the so-called troika: the European Commission, European Central Bank and International Monetary Fund.
Portugal won a $106 billion bailout from the troika in 2011, a huge amount in an economy with a $215 billion annual GDP.
That aid came with demands for budget restrictions. Lisbon needs an operating government to negotiate with the troika and execute the painful actions required going forward.
But the Portuguese are suffering from austerity fatigue, an ailment that has cropped up in most eurozone crisis countries.
And no wonder. Portugal's jobless rate stands at 17.6%. Austerity has proved to be a growth-killer. GDP has been shrinking since Q4 of 2010.
The PSI 20 stock index sank 5.3%, its biggest one-day loss in more than four years.
Panicky bond selling boosted Portugal's 10-year yield by 69 basis points to 7.21%. It topped 8% — a seven-month high according to Tradeweb — before cooling off. That yield stood at 5.53% just two months ago.
Stock declines Wednesday were less harsh in Paris (off 1.1%), Frankfurt (off 1%) and London (off 1.2%). Madrid's benchmark fell 1.6%.
Ten-year sovereign debt yields leapt 34 basis points in Greece, which is having trouble meeting its own requirements for its next tranche of bailout money.
Safe-haven Germany's 10-year yield fell 4 basis points.
Portugal's PSI 20 stock index has sunk 18% from its May 7 high. Madrid's IBEX 35 index has fallen 10% and Italy's FTSE MIB 13.4%.
You won't find a liquid Portugal ETF. But comparing the PSI 20's 2013 performance (-7.4%) to the 18 benchmark ETFs tracked on IBD's Daily World Map would put it in ninth place. That puts it between Hong Kong (off 6.5%) and Mexico (off 7.9%).