The EU bazooka which led to a massive short covering rally has fizzled out with the Euro below the level that it one week ago.However I think with almost 15% fall ytd against the dollar , euro might stabilize or even rise a bit in the short term.The fall of the Euro is giving more of a hard time to China  and the US then Europe which benefits from increased exports in the demand constrained world of ours. I think a further fall in the Euro might invite implicit or explicit devaluation by its major trading partners .

The fundamental problem with Europe is the central monetary policy and separate fiscal policies .Until this problem is resolved we will see Europe lurching from one problem to another.The sovereign debt problem in the slow growing PIGS countries won’t go away easily . Austerity programs will lead to GDP decline which will make debt servicing problems even harder.On the other hand high deficits are  leading to the same problem.Portugal is seeing growth in unemployment despite the whole world showing signs of growth and  without any austerity measures.Portugal seems destined to see tougher years ahead.

Portugal’s unemployment rate rises to 10.6% from 10.1% – MarketWatch

Portugal’s unemployment rate rose to 10.6% in the first quarter, official data showed on Tuesday, highlighting the economic challenges the nation confronts at a time when it’s under pressure to lower its excessive deficit.The unemployment rate increased by 0.5 percentage points from the fourth quarter of 2009, Statistics Portugal reported on Tuesday. Compared to the same period last year, unemployment rose 1.7 percentage points.In the first quarter, the number of unemployed Portuguese surged by 96,400 to stand at 592,200 people from the same quarter a year ago. The jobless population rose by 28,900 compared to the last three months of 2009.

Portugal, much like Greece and Spain, has been under pressure to take action to cut its deficit, as worries over European debt levels have rattled financial markets, triggering a dramatic sell-off in the euro.Last week, Lisbon outlined additional austerity measures, including pay cuts for top government officials as well as tax hikes. Portugal’s budget deficit reached 9.4% of gross domestic product last year.The austerity measures should help cut the deficit to 7.3% of GDP by 2010 and 4.6% by 2011, according to the government.Spain has also taken on additional austerity measures recently, and has a much bigger unemployment problem than Portugal. Spain has the second-highest rate of jobless in the European Union, which reached above 20% in the first quarter and ranks only behind Latvia.