Sean O'Grady: If Portugal is small enough to rescue, Spain may be "too big to save"

Spain's small regional banks, the cajas, are virtually bust as a result of reckless lending into the now-collapsed property market

Even as the final details of the Irish rescue package are still being resolved, investors and economists are asking: "Who's next?"

The answer has been plain for some weeks – Portugal is the nation widely regarded as next most in need of assistance after Greece and Ireland, with Spain and, possibly, Italy following behind. There has been intense fear in Lisbon, Madrid and Brussels about what would happen even if Ireland's problems were not resolved rapidly.

Over the weekend the pressure piled on Lisbon again when the main opposition party queried whether Portugal's official debt figures were accurate. Persistent doubts about the Greek statistics have undermined Athens' attempts to gain credibility and qualify for aid; now the leader of the Portuguese opposition, Pedro Passos Coelho, has told his Social Democratic Party conference that items such as nationalised industries' companies' debts were not included in the overall public debt, which the government puts at 82 per cent of gross domestic product this year – even higher than Ireland.

While Portugal doesn't suffer from the same extreme banking crisis that Ireland does, many economists believe that her fundamentally uncompetitive economy leaves her as exposed as Greece to long-term difficulties while she remains inside the euro zone. They also doubt that she will be able to make her austerity programme stick.

Mr Coelho said that Portugal's "true" total public debt stood as high as 112 per cent of GDP, while the budget deficit should be at 9.5 per cent of GDP, far above the minority Socialist government's target of 7.3 per cent for the end of the year. "The state has for many years been removing from the budget a series of activities, which has made a large part of our numbers fictitious," said Mr Coelho.

However Mr Coelho has said he will support the Portuguese government's tough budget to be put before parliament on Friday.

And while most observers believe that Portugal is small enough to rescue, Spain may emerge as "too big to fail" but "too big to save", exceeding even the EU/IMF joint fund's abilities and Germany's resources.

One especially acute problem is that Spain's small regional banks, the cajas, are virtually bust as a result of reckless lending into the now-collapsed property market. An unreformed labour market, high unemployment and a highly devolved system of regional government are also obstacles to restoring investor confidence.