Portugal sounds bailout warning

Portugal’s government blamed higher
rates paid at a debt auction on the opposition’s refusal to back its latest
austerity plans, warning a political standoff could force it to seek a bailout.

Pressure on Lisbon mounted after
Moody’s rating agency downgraded Portugal by two notches late on Tuesday,
highlighting the challenges it faces in riding out its debt crisis.

The yield on $1.40 billion of
12-month treasury bills rose to 4.331 per cent at the auction, compared with 4.057
per cent two weeks ago.

The worsening financing situation
for Portugal — which many economists say is the next likely euro zone country
to need a bailout after Greece and Ireland — suggests the deal to boost the
euro zone rescue fund may have come too late for it.

Portugal’s plight has become yet
more complicated by the fact that the main opposition Social Democrats have
refused to back the government’s latest austerity plans, which are aimed to
ensure the country meets its budget goals.

“Failure to approve the new
measures in the budget plan would push the country to external help,”
Finance Minister Fernando Teixeira dos Santos told parliament’s budget
committee. “Current market conditions are unsustainable in the medium- and
long-term.”

Prime Minister Jose Socrates warned
that his minority government would be unable to continue if the country’s
long-term economic strategy, which includes the latest austerity measures, was
not passed in parliament.

“Yield levels in Portugal
still trade above their snowball level — where the level of interest charged
means their level of debt stock is going up — and that means that longer-term
the situation, despite their best efforts, is getting worse not better,”
said rate strategist Charles Diebel at Lloyds Bank.

BIZstory

Portugal may be the next on the list for a bailout.
Photo: File
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