Portugal bails out Espírito Santo

What some people thought was a temporary rough patch for Portugal has become the nation's biggest problem. Banco Espírito Santo's fall has imploded the financial and political system there as Portugal and its banks prepare for upcoming EU stress tests.

Last Thursday the bank declared 3.5 billion euros in losses for Q1 2014, which is a level of losses that it has never experienced. As a result, the bank cannot meet solvency requirements held by European authorities. Although there were murmurs about aid coming from private parties, time is precious. At this point it looks like a hybrid solution will play out. Some private funds could come, but they will join public money as the Portuguese government plans to plump EU bailout funding into BES so that it can pass the stress tests. This deal will cost 4 billion euros.

Portugal, or at least its taxpayers, is being forced to ask for a BES bailout while trying to keep government accounts afloat, too. The BES crisis is not over, and it's hard to predict how far the damage runs. Perhaps these 4 billion euros won't even be enough.