Only months ago, Portugal left the euro bailout fund, after it was one of the countries hardest hit by the eurozone crisis. Now it must use troika money to save a major bank - raising fears the crisis may not be over.
All signs pointed to recovery: In April, after a three-year absence, Portugal successfully returned to the capital markets. One month later, the country left the European rescue framework. And in June, the Portuguese government announced that it would not draw on the last tranche of emergency loans from the European Union and the International Monetary Fund.
But now Portugal has faced its first setback: Bank Espirito Santo (BES), the country's leading private bank, is in danger of collapse. Fearing a new banking and financial crisis, the Portuguese government has announced plans to save BES at a cost of 4.4 billion euros ($5.9 billion).
The money will come from the aid package that Portugal received from the EU, IMF and European Central Bank during the crisis. Of the total 12 billion euros, there is still 6.4 billion euros left.
"Having to rescue a bank now is obviously a setback for Portugal," Holger Schmieding, chief economist at Berenberg Bank, told DW. But, he said, the country can cope: "It is important that Portugal now addresses this problem quickly and vigorously. This will ensure that its effects on the Portuguese economy remain limited."
The turbulence surrounding the family-owned Espirito Santo empire has worried the Portuguese financial and banking sector for months. Irregularities in the Espirito Santo International (ESI) holding company came to light in late May. It is suspected of covering up losses of 1.3 billion euros.
The difficulties were probably caused by the bank's founding family's money problems. Several family companies are bankrupt. A few days ago, the head of the family, Ricardo Espirito Santo Salgado, was arrested in connection with investigations into money laundering and tax evasion. The family remains the largest single shareholder of BES.
The BES case is unlikely to herald a new financial crisis, David Kohl, chief economist at Swiss private bank Julius Baer, said: "We have a very bank-specific problem and it has little to do with the systemic crisis that we had a few years ago throughout Europe."
That crisis began in Ireland in 2008 where many banks were hit by a wave of defaults after the country's housing bubble burst. This in turn dragged down public finances after the government offered an unconditional guarantee in September that year covering the 400 billion euros in deposits at six major banks. This proved to be an enormous burden on the state budget, forcing Ireland to seek international aid.
Because of its precarious economic situation, Portugal later also had to ask for help from the EU. The country had to be rescued from default with international emergency loans amounting to over 78 billion euros.
"There will always be problems at individual banks," Schmieding said. What is important, he said, is to prevent them from spreading to other banks or to the overall economy.
"In Portugal, fortunately, those who caused the problems, the owners and managers, are being punished for their behavior with massive losses without causing savers and the overall economy to suffer," he said.
BES is to be split into a "good bank" and a "bad bank." The former will continue to operate normally under the name "Novo Banco," while the latter will remain in the hands of current shareholders and manage nonperforming loans.
Depositors are protected and should have no fear of loss, Schmieding said. "That's why the risk is relatively low that this could lead to bigger financial problems such as a massive withdrawal of deposits from other banks in Portugal."
Kohl also does not believe that the BES rescue will have broader implications for financial markets: "Here the new mechanisms established during the euro crisis are paying off."
In recent years, the financial markets have shown they are willing to put their trust in Portugal. The country is able to draw credit at relatively attractive rates, and the ratings agency Moody's recently upgraded the country's creditworthiness.
Moody's says uncertainties about Espirito Santo should not have a noticeable impact on the state budget, because Portugal is in a comfortable liquidity position, it has regained access to international credit markets and has significant cash reserves.