Portugal is the latest country to shatter the Eurozone’s fragile recovery and raise fears that yet another crisis is in the offing. The recent resignation of two ministers from Portuguese cabinet one—because of a lack of public support for the government’s austerity program, the other to show his opposition to the same—has led to a delay in the Troika’s review of Portugal’s economic progress and sent bond yields very close to the dangerous 7% level they were at in 2011.

But the current drama is not so indicative of a new crisis to come as it is of the endemic, underlying European problems that never really went away, both in Portugal and in the other affected nations.  

Although Portugal has been often held up as an example of post-bailout Eurozone success, and it has made some economic progress in the past couple of years, the Portuguese economy is nevertheless struggling to cope with a very high debt-to-GDP ratio that has worsened even as the country has reduced the amount it borrows, said Jennifer McKeown, senior European economist at Capital Economics in London. Unemployment rates are sky high and the lack of competitiveness with respect to its exports only makes things worse.   

Add to that the difficulty of passing austerity measures that Portugal, despite a positive initial track record, and all the other afflicted nations in the Eurozone are facing.

“While governments were making some progress initially, there was never any guarantee that that would continue, and the harder it is going to be to vote these measures, the worse their economies get,” McKeown said. “Portugal has shown just how difficult it is for governments to implement austerity measures and to what extent the fundamental, underlying problems that plagued the Portuguese economy are still present.”

Portugal has a major bond redemption due on September 23—just a day after the elections in Germany, an event many view as a make or break date for the disbursement of future bailout funds—and the current political chaos, despite Prime Minister Passos Coelho’s assurance that he is working on finding a solution to keep his government intact until the end of its term in 2015, means the country won’t receive the E2.8 billion loan tranche it was scheduled to get from its existing bailout fund later this month.

Portugal probably has enough cash in its coffers to honor the interest payment, McKeown said, and right before the political upheaval, it seemed as though the country was getting to the point of being able to issue debt on the international capital markets in order to refinance its obligations. But Portugal’s debt financing needs are extremely onerous, and there’s little doubt that the country is going to need more funding. And the million dollar question then is whether the core European countries would be willing to put together another bailout fund.  

“One way or another, we have found a way to muddle through this, and though each crisis has looked as though it’s the final one that would make that particular country leave the Eurozone, the authorities have somehow found a way, even if it’s at the very last minute,” McKeown said. “The questions, though, are how much Portugal would need, how much money would be given and whether the private sector would have to fill in the gaps as it did in the Cyprus bailout. Clearly, a Portuguese default would cause a huge problem for everyone, but it is also possible that politically, in the core countries of Europe, bailout fatigue is settling in.”

In any case, more money would only help temporarily.

Longer-term, McKeown said, there are few options for countries such as Portugal. “Either they have to go through many years of pain as they try to draw down their debt burdens and gradually improve their competitiveness, or lots of companies will end up going under because they’re unable to pay their debt, and that’ll lead to a longer period of difficulty,” she said.

Ultimately, however, the decisions may not be made by governments, because if voters are unwilling to accept austerity measures, then situations may spiral beyond governmental control and countries – in this case Portugal – may be forced to leave the Union.

Portugal’s unemployment rate is now touching 18% and disposable incomes are falling rapidly.