Portugal gets market respite after Irish bailout

By Barry Hatton

Associated Press

Published: Monday, Nov. 29 2010 4:40 a.m. MST

LISBON, Portugal — Market pressure on Portugal eased Monday after European Union countries endorsed a plan to help Ireland with its ailing finances, but Lisbon's high debt burden was expected to remain a worry for the eurozone.

Officials in the 16 nations using the euro currency hope Sunday's agreement to give €67.5 billion ($89.4 billion) in loans to Dublin will check the spread of investor jitters to other fiscally vulnerable members of the bloc, especially Portugal and Spain.

Portugal is regarded as the next weakest link after Ireland because of its high debt load and weak growth and has been a target for market jitters since Greece's bailout in May.

The Irish deal provided some temporary respite as the yield on Portuguese 10-year bonds fell slightly to just below 7 percent while Ireland's was down to 9.1 percent. Spain's yield, however, edged higher to 5.3 percent, continuing its recent upward trend. By contrast, Germany's 10-year bond yield — a benchmark of lending safety — was stable at only 2.7 percent.

UniCredit Research said in a note Monday that despite Ireland's rescue "the risk remains that the euro area comes under continued pressure to provide a package for Portugal at least."

Portugal's government has repeatedly said it does not want or need financial assistance, though soaring borrowing costs could change that.

It says its 2011 austerity program, approved last week by Parliament, will bring its debt back under control through tax hikes and pay and welfare cuts.

Portugal has not had to contend with a banking crisis or a burst property bubble.

Prime Minisiter Jose Socrates says his country is already showing signs of recovery, with a rise in exports of around 17 percent through September and a current growth rate of 1.8 percent.

The austerity plan may stunt growth next year, however.

Economist Nouriel Roubini says Portugal should consider asking for a bailout now, before its financial plight worsens.

Roubini, a professor of economics at New York University who predicted the financial crisis, told daily paper Diario Economico it is "increasingly likely" Portugal will require international assistance.

He said in an interview published Monday there are ample funds to shore up Portugal, one of the eurozone's smaller countries which contributes less than 2 percent to the 16-nation bloc's gross domestic product.

Roubini said Portugal is approaching "a critical point."

But he said neighboring Spain, Europe's fourth-largest economy, is "too big to bail out."

Get The Deseret News Everywhere

Subscribe

Mobile

RSS