European officials pledged last year that taxpayers will never again face losses from a bank failure until all creditors and unsecured depositors have been wiped out first. They seem to have backed away at the first sign of trouble, opting for soft terms rather than the draconian measures imposed on Cyprus... Portugal's decision to protect senior bondholders is incendiary in a country already near austerity fatigue.


Mr Passos Coelho took a major gamble by going for a "clean exit" at the end of Portugal's EU-IMF Troika programme in April, refusing to accept a backstop credit line. He brushed aside warnings from the IMF, worried about debt redemptions over the next two years. He insisted that the country is safely out of the woods, able to borrow cheaply from the markets without having to accept dictates from Brussels. This has been popular, but may go badly wrong if investors shun risky assets once again.

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