Portugal has become the next big worry for investors who see it as following Greece into debt trouble.
The feeling in the market is that Lisbon will need a second bailout to avoid a default.
The result is a sell-off of shares and a sharp increase in borrowing costs for the Portuguese government.
Lisbon cannot afford to pay such high interest rates and so will be shut out of capital markets for the forseeable future.
“If we look at where bond yields are for Portugal it makes it impossible for Portugal to access debt markets in 2013,” said Nikolaos Panigirtzoglou, a rate strategist at JPMorgan.
“It’s a country that still relies on the official sector in terms of financing its current account deficit and repayments and this makes it certain that we’re going to get a second bailout for Portugal later this year.”
Its situation is in contrast to debt-ridden Spain and Italy as well as bailed-out Ireland. Their borrowing costs have fallen on the back of a huge infusion of low-cost loans from the European Central Bank.
Unlike Portugal and Greece, Ireland has moved to surplus on its current account over the past year in its fight to rebuild investor confidence.
“Ireland … is a different case in the sense that its private sector at least is doing OK and is growing and generating trade surpluses,” said Richard Batty, investment director at Standard Life Investments.
Ireland still faces hurdles, particularly given a weakened growth outlook on top of a debt ratio officially forecast to peak at 119 percent of economic output next year. But it is campaigning on a number of fronts to improve its chances of funding itself fully for 2014.