Darren Williams, senior European economist at AllianceBernstein, expects a second bailout of Portugal, but says that it is less likely than Greece to result in losses being pushed onto private sector lenders.

The overriding priority for euro-area policymakers at present is to conclude negotiations with Greece over the details of a second rescue package, without which Greece will default and may even leave the euro. But once these negotiations are over, attention will eventually switch to Portugal.

Last May, Portugal became the third country to receive a bailout from other euro-area governments and the International Monetary Fund (IMF). As with Greece, one of the key assumptions underlying the €78 billion loan was that Portugal would be able to return to the bond market in the latter part of the program-i.e., towards the end of 2013.

Although this is still a long time away, 10-year yields above 14% suggest this is an implausible assumption. Like Greece, Portugal will probably require a second bailout.

The question is whether or not this will involve a contribution (or haircuts) from bondholders. To help answer this question, it is worth explaining why euro-area leaders are forcing bondholders to share the cost of a second Greek bailout. While there may be several secondary considerations, the main reason is simple. By the first half of last year, the early optimism had worn off and policymakers realized that the Greek adjustment was failing-partly owing to the design of the program, partly because of poor policy implementation and partly because Greece's starting position was so bad that success was probably never really possible.

By this stage, not only was it was clear that Greece would be unable to access market finance at any stage in the near future, but rapidly rising debt projections meant that the potential cost to the official sector was starting to explode. Torn between their desire to avoid a messy default on the one hand, and the need to limit their taxpayers' exposure to an insolvent government on the other, Europe's leaders chose the middle course-a new rescue package involving contributions from both the private and official sectors.