The European Central Bank (ECB) has stepped in to the financial markets to buy Portuguese bonds on Thursday amid growing fears that the eurozone's rolling crisis is about to claim its third victim.
Policymakers in Frankfurt intervened for the first time in three weeks as borrowing costs on Portugal's debt remained at a level that proved to be unsustainable for both Greece and Ireland.
Left Bloc, one of the smaller parties in Portugal's parliament, said on Thursday it would table a motion of no confidence in the minority socialist government of the prime minister, José Sócrates, over its painful austerity measures to cut the budget deficit. The political uncertainty further unnerved investors, who dumped Portuguese bonds this week, sending yields soaring.
The ECB's attempt to reduce the tension was prompted by a rise in the yield on 10-year Portuguese bonds to 7.63% – the highest level since the country became a founder member of the single currency at the end of the 1990s.
Although Lisbon insisted it would be able to continue financing itself in debt markets, pressure on Portugal has been mounting in recent days as dealers questioned the eurozone's ability to put together a package of financial support and economic measures to protect member states from further speculative attacks.
Traders are concerned about Portugal's ability to refinance almost €10bn (£8.5bn) of debt that matures this spring, with the lack of confidence underlined by the poor performance of a syndicated bond launched by the government this week.
Cabinet minister Pedro Silva Pereira said: "There are no reasons to think Portugal does not have conditions to keep tapping the markets. It's quite the opposite." He blamed speculative attacks for rising yields. "This has to do with sovereign debt markets and not only in relation to Portugal but rates at the European level – all subject to speculative moves attacking the euro," he said.
Silva Pereira said Portugal was getting to grips with its financial problems, saying there were "extremely positive" signs from tax revenues as the country sought to slash the budget deficit this year from about 7% of gross domestic product to 4.6% of GDP.
Dealers said, however, that Portugal appeared to be following the same pattern as Ireland late last year, when sky-high borrowing costs forced Dublin to seek help from the European Union and the International Monetary Fund despite repeated government claims that the country could cope.
Guardian
More:
http://www.guardian.co.uk/business/2011/feb/10/european-debt-crisis-threatens-portugal
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