Portugal’s Prime Minister resigned last night after he was unable to pass proposed austerity measures in Portugal’s parliament. As a result 10 year government bond yields rose 10 basis points to 7.63% (still far from a buying opportunity in my opinion). So far among the PIIGS Ireland and Greece have had formal bailouts, but it seems that it will be a matter of days or weeks before Portugal goes as well (leaving Italy and Spain). The problem is that the bailouts so far have only postponed what is almost certain to be much larger bailouts in the future. The EU has guaranteed that all debt issued before June 2013 will not be restructured, but this guarantee is just creating further difficulties. Currently Ireland is threatening to force senior bondholders to take a haircut, but the EU is instead demanding that Ireland increase its corporate tax rate. So what is going on? In short, the EU and French and German governments are asking Irish, Portuguese and other PIIGS citizens to bailout French, German and US banks (major holders of these government bonds). What should happen? Sovereign governments are responsible for the interests of their citizens. The best interests of Irish and Portuguese citizens is to default. The defaults should be soon, orderly, and balance out the interest of taxpayers and bondholders. At the moment far too much weight is being given to financial market interests and too little to the welfare of the citizens of smaller European countries. 2013 is far too long to wait to sort this out.