Portugal faces an imminent political crisis that could force the government to resign, trigger a snap election and make an international financial rescue inevitable, according to government ministers and opposition leaders.

The minority Socialist government is almost certain to be defeated on Wednesday in a parliamentary vote on a new austerity package, leaving José Sócrates, the prime minister, with little alternative but to resign.

Opposition parties have refused to back the austerity measures, which Mr Sócrates planned to take to a key European Union summit meeting at the weekend as proof of Portugal's determination to avoid a bail-out

Eoin Treacy's view Speculation over whether Portugal would have to seek an EU/IMF bailout has raged for much of the last year. The country's 10yr yield remains at an elevated level which probably reflects a lack of belief among investors that the country will avoid a bailout.

The EU periphery's debt problems remain unresolved. Right now it is impossible to know whether the austerity packages foisted on so many countries are going to be sustained for the lengths of time necessary to bring government debt/GDP ratios back into line with the stability and growth pact.

The ECB has become increasingly hawkish in its statements, raising the possibility that interest rates will rise sooner rather than later. Such an eventuality would represent a significant headwind for peripheral nations and could pressure their commitment to fiscal austerity.

The Euro Trade Weighted Index found medium-term support above 120 from June 2010 and has sustained a progression of higher reaction lows since. It has been flattered somewhat by the weakness of the US Dollar of late as it rallies towards the November peak near 133. This is still quite an elevated level, historically, for the Euro, but a clear downward dynamic, sustained for more than a day or two would be required to suggest a return of supply dominance.