The holiday season has only given short reprieve for eurozone worries. The financial markets, including the forex market, are now again in a panic mood about the sovereign debt crisis in the eurozone. Global financial markets are particularly worried about Portugal. It is expected that before this year ends the country will soon follow the path of Greece and Ireland in seeking the help of the European Union and International Monetary Fund. Portugal may eventually need to be bailed-out.

Portugal is now under the spotlight of the global financial sector. The eurozone sovereign debt crisis is again dominating the financial news headlines. Investors in the stock market and foreign exchange market are now again in a panic mode. One does not really need to learn forex trading or become an economist to realize the serious impact of the eurozone debt crisis on the financial sector and on the global economy in general.

Many forex traders and stock market investors perceive that Portugal is creating an unsustainable balloon debt that may soon burst. The financial sector is worried about the fact that Portugal is again attempting to raise funds by borrowing. Portugal has initiated the sell of government bonds on Wednesday (January 12). It is offering ten-year government bonds, making it the first eurozone country to sell its debt early in the year. There is a distinct probability that this auction will fail considering that existing bond investors are now selling off their bond holdings.

The yield of Portugal’s ten-year bonds rose to 7% in the past two months. This meant that many bond holders are selling their bond holdings at lower prices. This implies that they do not anymore have high confidence on Portuguese government bonds. Coincidentally, the 7% increase in the bond yield is also considered as the ‘magic’ number that seems to indicate an imminent financial collapse similar to what happened to Greece and Ireland.

Unlike Greece, government extravagance and budget mismanagement are not the main problems being faced by Portugal. Before the eurozone crisis was triggered by the Greek financial meltdown, Portugal’s sovereign debt was manageable. However, the economy of this Iberian country is relatively stagnant and its private sector has large debts. The very lenient interest rates and policies of Portuguese banks have encouraged many borrowers but also created an economic bubble.

Many of those who make money through the forex market are worrying about the possibility that Portugal will eventually need to be bailed-out because of its unmanageable finances.

On the other hand, some glimmer of hope was seen when both China and Japan pledged to give their support to the economically embattled eurozone. Japan has announced that it will buy bonds issued by the bail-out funds. Meanwhile, China promised that it will continue its investments in Spanish government bonds.

In spite of the support pledges from Asia’s two largest economies and despite of the political will of eurozone policymakers, the fundamental problem of the region is not fully addressed. There is still no long-term solution and the permanent ‘bail-out’ fund available is very small to cover all possible emergency financial needs of the member states. There are three main suggestions on how to address the problem. First is to significantly increase the seed fund. Second is to issue eurozone-wide debt instruments. The third option is for the European Central Bank to initiate quantitative easing.