Who's next? Markets hunting for PIGS

The extra yield demanded by investors to take on Portuguese sovereign debt compared to safe German government Bunds rocketed to an all-time high yesterday: 205 basis points against 193 on Friday.

The credit default swaps market, which measures the cost of insuring sovereign debt, showed a similar spike: Portuguese five-year CDS rose to a record 288 basis points from 278.8 bps at the end of last week.

Expert economic opinion also seems to be turning against Portugal. Ken Rogoff, a former chief economist at the IMF and now a Harvard professor, said that Ireland, Spain and Portugal were all "conspicuously vulnerable" to a Greek-style crisis. "It's more likely than not that we'll need an IMF programme in at least one more country in the euro area over the next two to three years. The budget cuts needed in Europe in many countries are profound. The stakes are very high for Europe as it wants to avoid contagion," he said.

All the so-called PIGS – Portugal, Ireland, Greece and Spain – have high borrowing and indebtedness. Ireland's budget is the most in the red this year, at 14.3 per cent of GDP, ahead of Greece on 13.6 per cent, Spain at 11.2 per cent and Portugal's 9.4 per cent.

Most observers concede that the austerity programmes launched by Dublin, Lisbon and Madrid are more credible than those offered by the Greek government. Portugal's total debt-to-GDP ratio is 80 per cent, at the top end of what most economists think is sustainable, against 110 per cent in Greece.

Ewald Nowotny, a member of the European Central Bank's governing council, said: "With Portugal and Spain, if you look at the numbers, they're not to be compared with those of Greece ... there is no economic cause for a contagion discussion."